The Purpose of a Business Plan
A law firm is a business, despite the preconceptions many outsiders and lawyers themselves may have about the practice of law. Like any other business, a law firm requires a sound business plan and strategy to improve its chances of success. A comprehensive law firm business plan includes a strategic plan consisting of short- and long-term goals as well as numerous other components, such as a budget, a marketing plan, and a financial model.
A business plan can help improve the law firm’s chances of success by analyzing its internal and external environment and identifying its short-term and long-term goals. For example, in looking at the firm’s external environment, it must be realistic about legal market opportunities and challenges. And in developing its strategic plan, the firm must be realistic about its internal resources and capabilities, including its ability to implement its strategic plan within the constraints of its financial model.
A comprehensive law firm business plan and strategic plan not only helps a firm to develop a real-world understanding of its positioning within the legal market, it helps it identify the best path to its growth objectives within the constraints of its resources. And a business plan should also serve as a guide for monitoring whether or not the firm is performing according to its expectations .
The law firm business plan also defines how much financing a firm will require based on its long-term and short-term goals. The amount of basic financing a law firm requires will depend on its practice area(s), its level of activity, and how it sells its services (e.g. how many cases it handles, how many settlements or verdicts it obtains). And whether the firm is a solo practitioner or has a hundred attorneys the financing needed at startup will differ, along with the type of external financing sources available.
A business plan can also help improve the firm’s chances of securing its financing. Most lenders and investors will require an existing business to produce a business plan to evaluate its creditworthiness, or provide a funding source a basis for the level of risk they may or may not be assuming in providing the financing. For example, a potential lender is generally interested in the firm’s financial model, growth strategy, and extensive market analysis. Essentially, lenders want to see an evaluation of the assumptions about how a business will operate and generate revenue. Based on its business plan, whether implemented or in development, the lender can determine not only whether or not to extend a loan but what its terms will be. Whether your firm will be financing from an outside source or from cash flow created by the business itself, a solid business plan is crucial to the success of the business.
Core Elements of a Law Firm Business Plan
Every comprehensive business plan consists of several key components. To provide a solid foundation from which to grow and succeed, the business plan for a law firm must be thoughtfully constructed and cover the essentials.
For a law firm, your business plan should address the following:
Executive Summary
This section should be an overview of your law firm that encompasses your goals, mission statement (objectives), organization structure, and key personnel. Don’t forget the "who" and "why" behind your endeavor. Include information about who will make decisions on a day-to-day basis and who will be responsible for driving the organization. As in any type of business plan, this is just a blueprint. You can fine-tune it over time.
Firm Description
Firm description involves highlighting the type of services you will provide and to whom. Are you a full-service law firm, or do you focus on only one area? Are you going after individuals with average means who need assistance with estate planning and bankruptcy, or are you targeting the upper echelon who can afford experienced lawyers? It can be helpful to look at your competitors and analyze their weaknesses as well as their strengths.
Market Analysis
You should have already identified your target client base in the last section and how you intend to reach them through marketing and advertising. A market analysis evaluates whether the population you wish to target is accessible and if the services you plan to provide are in demand. Do potential clients know they need your services? The retail and service industry conducts market research all the time through surveys and focus groups, for example. You can emulate this strategy as a law firm and stay connected to what your clients want. This information can also keep your firm relevant.
Organization and Management
If your firm is structured like a partnership, how will you divide equity among attorneys? Who is designated to share significant management responsibilities? If you have well-educated attorneys with impressive backgrounds, any investor is going to want to know their expertise as well as your plans to market those skills. You’ll need a comprehensive human resources plan that details various levels of authority, compensation packages, and insurance benefits you will offer your employees and partners. Will your firm invest in continuing education for attorneys, and if so, how much? Or do you expect lawyers to pay for their own CLE and to partake in professional development on their own? This section will cover recruitment, retention, organization, and succession planning.
Services Offered
Identify where your firm’s expertise lies. What can you offer potential clients that will make you stand out? What do you do very well that clients will pay for? You can differentiate your services by specializing in one or two practice areas, or you can create a niche by employing a team of exceptional lawyers who have superior trial records or groundbreaking research if you are into litigation.
Marketing and Sales Strategy
The marketing and sales strategy will touch on your marketing plan and client retention strategies. This is where you should explain how you intend to position yourself to attract your ideal client and how you plan to maintain that relationship.
Funding Request
You should have your financial projections mapped out by now, but if you require assistance to get started, this section should outline how much you need and the purpose. Include whether this is a start-up or ongoing funding request.
Financial Projections
Continuing from the previous section, you should have financial projections in place that support your funding request, whether it is for start-up capital or cash flow assistance. If applicable, include your projected revenue stream and profit-loss statement for the next three or more years. How much does it cost to run the firm and how much income will you generate? Show anticipated profit margins and return on investment for investors. If you are asking for loans, which debt instruments do you intend to use?
Appendix
Most of the information you have covered in this outline should require little explanation, but this is a good section to include detailed resumes of key staff, legal documentation, jury or referee recommendations, etc.
Conducting Market Research and Competitive Analysis
Conducting thorough market research is essential for any law firm looking to develop an effective business plan that positions itself in the competitive legal services marketplace. This involves not only identifying potential clients but also understanding how to provide them with the best possible value. More than that, you have to research the market to carefully consider both your competitors and the threats they might pose.
By identifying the types of cases that are available within your niche, you can hone your marketing efforts to capitalize on that opportunity. You should understand the average number of cases in your field, how many lawyers are chasing after those cases and what type of competition you’re facing. You must also know why a person would select you over another firm with similar skills and capabilities and what the probability is that the case they put in your hands will eventually provide them with a payout. Doing so involves a comprehensive analysis of not only the potential market size but also how much legal work is already being provided and the fees associated with various types of cases.
It is equally important to know your competition and what you’re up against. How many firms operate in your area? What are their skills, strengths and weaknesses? What type of technology and support services do they have at their disposal? What are their average fees and how are they structured?
Understanding the answers to these questions can provide valuable insight into how to position your firm in the marketplace. For example, you may discover there is already a surplus of attorneys handling lower-end cases so you decide to focus on bigger payouts. Or you may find that shrewd law firms are underselling you so you need to adjust your pricing strategy. You should not only be upfront about your billing policies but also create language to help you proactively respond to objections.
All of this information can find its way into your business plan, giving you a roadmap to help guide your operations moving forward. You can hit the ground running, equipped with a set of expectations to meet.
Identifying Your Law Firm’s Unique Selling Proposition
Your unique value proposition (USP) is a critical cornerstone for your law firm business plan. It refers to the strategy you use to help clients differentiate your firm from other firms in your market. Having a well-defined USP allows you to establish a strong connection with prospective clients, and reinforces the relationship once the sale is made. It works like this: your USP identifies the target market you want to work with, the business strengths that you possess, and your unique skills, talents and abilities. When you match these to the needs of your target market, you can promote your products or services in a way that offers value for money in the eyes of your clients.
The Role of USP
A USP answers prospective client questions such as these:
How can I be sure that the services you offer are reliable and will deliver what I need?
How do I know that I will be treated with courtesy and respect?
Can I rely on you to represent my interests in my legal matter?
Should I trust that you will keep me informed about the progress of my case?
How do I know you have the expertise to help me solve my legal problems?
A clear and compelling USP will not only help you market your law firm or specific areas of practice to target prospects, it will also help you communicate your value to existing clients. Making your USP an integral part of business development for your legal practice will help:
Job search firms estimate that more than 50% of all resumes presented to hiring managers are prepared without considering how the prospective employer can benefit from the applicant’s experience or skills. This is the same for many lawyers who try to differentiate their expertise by offering similar messages about services and cost.
Every legal client is seeking value from hiring a legal professional. Without a clear value proposition, they have no way of determining how your services can help them—and how selecting your firm benefits them.
Effective law firm business plans will identify the target market for a specific practice area and how to meet that market’s needs. Once you know what those needs are, you can identify your services and benefits to address them. When you present a match between what you offer and what the client needs, you’re more likely to gain their trust and business.
In today’s competitive legal marketplace, the "creature features" to which we had become accustomed to appeal no longer provide a dependable edge over competitors. It’s vital to define how you deliver value and how you can exceed a client’s expectations. Only when these elements are communicated can your firm build market trust and reputation.
Benefits for Client Acquisition and Retention
To be effective, any USP must meet target market needs. Oftentimes, a lawyer will give short shrift to the USP concept, considering it to be of primary importance to lawyers who sell products. However, the ‘benefit’ refers to value, not simply financial value, but the value of the service delivered. That is, what value does the service bring to the life of the consumer?
Clients who clearly knew what products had been created to target their needs helped these companies to create stronger USPs. The value of service delivery became clearer. Similarly, you must define the value of your services for clients so they know what they are getting. You need to identify what your clients are seeking, and how your product can deliver those benefits.
The USP is the bottom line. You have to define the benefits clients are looking for, and then be able to demonstrate how your services deliver those benefits. Law firms focus on their own needs and forget to talk about how their services translate into meeting the needs of target markets.
Establishing Financial Goals and Forecasts
The financial section of your plan provides benchmarks that can be used to evaluate the success of the firm and compare it to others. A winemaker, for instance, will look at gallons of wine produced and amount of cash flow generated. Similarly, a law firm may choose to look at attorney-hours worked and billings-to-cash receipts ratio.
You’ll need to establish realistic financial goals. If you’ve already been practicing for a while, you can likely get a better bead on this by looking at your firm’s historical financial records. If you’re just launching your firm, you’ll want to project it out for the next 12-24 months , at least. That means making estimates for revenues, expenses, and profits for this period.
Your financial projections also will help you allocate resources, such as attorneys and administrative staff, as well as choose which practice areas to focus on. For instance, if your revenue projections are lower than expected, you may want to wait a bit before hiring additional attorneys or staff. If you have a high rate of return for a certain type of case, you may want to invest in technology that will help you with those cases.
Your financial projections also will facilitate forecasting and ultimately help you plan for future growth.
Designing a Comprehensive Marketing Plan
The next step in our process of crafting a winning law firm business plan is developing a strategy for attracting clients to your firm. Marketing is not just a slogan – it’s a process. Creating a marketing plan will generally include several components such as digital marketing, networking, and engagement touchpoints designed to connect with prospects in a meaningful way so you can convert them into paying clients.
Digital marketing is a critical element of any law firm’s success and should include both a solid website and social media presence. Your website is where prospects will go first to find you – so you need a site that is clear, crisp and easy to navigate on any device. In fact, mobile is key. Nearly half of those searching for an attorney online are doing so from their phones. If your site isn’t mobile-friendly you are going to lose business. Your website is also going to be the target of much of your digital advertising efforts so it needs to capture leads and drive them right to your door. It also needs to incorporate keyword-rich content that is naturally integrated so when prospects do search for you online they find your site rather than a competitor. The same goes for social media. Facebook, LinkedIn, Twitter, Instagram and more – your target client is on one or all of these platforms so you have to determine which ones are going to bring you the most success. Social media marketing is a key element to your overall law firm marketing plan and helps build relationships and trust. Both digital marketing and social media are ongoing and really should become a part of your daily routine. Developing an editorial calendar for social media is a great way to keep the momentum going.
All of your networking connects back to your ability to build relationships with referral sources as well as potential clients. Attend networking events through the bar association, volunteer opportunities, with civic organizations, and anywhere your prospects are going to be. Networking efforts should be a part of your business development plan and your view should always be long-term. Once you make a connection, you need to nurture that relationship. Building trust with prospects can be as simple as a phone call. Follow up on a meeting you had or check in on someone recovering from surgery. Look for ways to cross pollinate – if you met someone at an event, check out that group’s calendar to see if there is anything coming up that is appropriate for them to attend. Then make the call. It may not pay off right away but you are being seen as someone who is trustworthy, giving value, and treating them as a person not as a potential dollar sign. As you develop a detailed law firm business plan, your marketing plan is a critical component. The ability to attract prospects and convert them into paying clients is an ongoing effort that must be strategic and designed to move them through the sales process. Building trust and solid communication with your prospects is the first step in this process. Tune in next week when we discuss an effective approach to building a strong team of highly qualified professionals, which includes attorneys.
Planning Operations and Team Structure
Its vital to think about your "business" when you draft an operational plan. Sometimes referred to as a management plan, this section should recommend and evaluate the resources (staff, technology infrastructure, office management, workflow) that will be required to meet the law firm’s goals.
When looking at staffing needs, consider both the legal and nonlegal aspects of internal support. When looking at legal staff needs, consider how much is enough? What qualifications do they need? Consider whether the current support staff is meeting the firm’s needs before hiring legal support staff.
Nonlegal staff includes administrative functions. What is needed to support that area? From both the financial and operational perspectives, what are the costs associated with more hiring versus outsourcing these functions, and how does it help or hurt the business in either the short or long term?
Of course, when looking at office management, you are committed to the vision articulated in the marketing plan, so you will be aware of your target market and where they are located. Does that affect the choice of office location or the ability to expand? Are there extra costs involved if the firm considers multiple locations?
Keep in mind the historic view of what could go wrong or what costs can be avoided. If you have learned from prior practical experiences and use them to keep the firm operating smoothly, that will likely save the firm from potential pitfalls down the road.
Assessing Risks and Contingencies
The practice of law is fraught with potential risks that can threaten not only individual cases but the entire law firm. A comprehensive business plan must therefore include a section on risk management that identifies these risks and develops contingencies to deal with them. This can include everything from financial losses to malpractice claims to challenges in maintaining client confidentiality. The risks must be analyzed in terms not only of their likelihood of occurrence but also their potential impact on the successful operation of the firm.
The plan should also address how to contain damages in the event of a data breach, an angry client or third-party claim and the availability of malpractice insurance. This should also include what business interruption insurance would cover , based on the primary practice areas and types of cases. What happens if you sustain injuries while on retreat, get SARS or West Nile Virus, or are raped, murdered or kidnapped? It’s not necessarily the legal liability that is a problem, such as whether or not hospital bills are covered. The problems often arise for the people who work for the law firm, many of whom are intended third-party beneficiaries, due to issues of subrogation by the insurer. If you are embroiled in a lawsuit or covered by a liability insurance policy, whose defense costs are being covered, are you caring for the clients’ needs? This is an important concern for all lawyer who has been sued.