How To Open A Small Law Firm Table of Contents

How To Open A Small Law Firm
Published by the Young Lawyers Division of the North Carolina Bar Association
Table of Contents
I. The Nuts And Bolts of
Starting Out
II. Office Matters
III. General Advice
Location, Location, Location
Selecting the
Business Entity
Furniture and Equipment
Keeping Clients
Library and Research
Office Policies
Tips for Success
Trust Accounting
If you are thinking about opening a law firm in North Carolina, this book is for you. While every effort has been made to be inclusive (topics range
from choosing a business entity to tips for success), this book is not intended to be an exhaustive treatment of the topic or a substitute for casespecific professional advice.
This Web page is divided into three sections: (1) the nuts, and bolts of starting out; (2) office matters, including accounting, insurance and
choosing business form; and (3) general advice.
I. The Nuts And Bolts of Starting Out
Opening a law firm is a big decision. Give yourself time to weigh the pros and cons. This is not something you should do by default. You should be
able to articulate a clear, cogent reason for wanting to open a law firm and have a sense that your personality and temperament are well-suited to
the venture ahead.
Undoubtedly, opening your own firm gives you a degree of control over your life. You can select what cases you want to take, where you want to
practice and with whom you want to work. At the same time, solo practice is fraught with pitfalls. You may have to learn a lot of what you will
encounter through trial and error.
Location, Location, Location
If you are not already settled somewhere, you need to decide where to open your practice. Consider growing areas that have lower lawyer-toclient ratios than others and factor in your areas of practice and your urban or rural preferences. Remember, once you build a practice, it is very
difficult to move it.
Once you've picked a town, you'll need an office. Consider locating your office near the courthouse (if your practice takes you to the courthouse
regularly) or near potential clients. Other considerations include: cost of utilities, phone lines, access on nights and weekends, visibility,
maintenance, security and parking.
Consider renting instead of buying. Run the numbers. (If you don't know how to run the numbers, find someone who does.) Also, consider office
Do not work out of your house if you can avoid it. Generally, clients are turned off by such an arrangement.
When setting up your office, view it from two perspectives. First, your own. Is it functional? Are the things you regularly need close by? Is it
professional? Does it convey the image you want? Second, your clients. Is it neat and clean? Accessible? Are the magazines current?
Furniture and Equipment
Consider getting the following for your office: desk and chair for you and your assistant (who may be a secretary, receptionist or paralegal),
bookcase, file cabinet, supply case (if no closet), conference table and chairs, chairs for reception area, telephone system, copier, fax, paper
shredder and computer systems. Depending on how technologically savvy you are, you may or may not need a typewriter and dictation
Rent or buy? Again, run the numbers and if you don't know how to run the numbers, find someone who does. Before renting, however, be
creative. Shop estate or garage sales, the classifieds, used furniture stores, etc. If you buy, remember to build into your budget the cost of
replacement, especially for technology items.
It is beyond the scope of this book to list all of the office supplies that you will need, but two merit special mention. First, stationery. Why buy
stationery when you can create your own on your computer? At the same time, your letterhead is important, so get a second opinion as to style
and content before you begin using it. Second, as soon as your address and phone number are finalized, get business cards printed up. If your
name or practice area lends itself to a logo or artwork, consider putting that on your card and letterhead.
Library and Research
First, review the collection at your county law library. Depending on your practice and the convenience of going to the law library, however, it may
make sense to purchase some resources. Don't go overboard. Although the initial book price may be reasonable, you may later find the
supplements quite expensive. It is a good idea to subscribe to Lawyers Weekly. Consider on-line alternatives to paper reporters. Most companies
offer both.
Office Policies
The North Carolina Bar Association provides some valuable forms, including office policies, fee agreements and engagement letters. Call 1-800662-7407 or (919) 677-0561 and ask for Client Keeper. Some of the policies discussed include:
Phone policy. This is a main source of client contact and usually the source of your first impression. Set out clear guidelines about
who is to answer the phone and how it is to be answered. Indicate who is to be put through, how to screen calls and how
messages are to be handled. Give instructions about non-lawyers giving legal advice and how to handle questions about fees. If
you have a sophisticated phone system, make sure everyone in the office knows how to use it.
Mail policy. Explain who is to retrieve and open mail, how mail is to be distributed, where outgoing mail is to be placed, and when
the deadline is for outgoing mail and over- night packages. Choose an overnight service based on proximity to a drop off location
or availability of pickup service, rates and customer service. A postage meter is something you can acquire later in practice;
stamps will do fine at first. You will need a scale. Consider whether to purchase a post office box.
Case management system. There are many good software options for this. A backup system for your calendar and computer
system is also advisable.
Other issues to include in your office products are: file opening and closing procedures, general treatment of clients, confidentiality, Internet usage
and employment matters (vacation, holidays, sick days, inclement weather).
You will need a handful of professionals before you open your door, including: an insurance salesman (malpractice and general liability), banker
and an accountant. Insurance is discussed later in this book.
Your banker can help you set up the following accounts: general, trust and a separate payroll account. The North Carolina State Bar has some
very specific guidelines about setting up a trust account. Information regarding these accounts appear later in this book, as well as in a separate
North Carolina Bar Association Young Lawyers Division publication.
In addition, an accountant can help you with tax and accounting issues.
These professionals will be valuable assets to your success. Not only can they help you with setting up and maintaining various parts of your
business, they can become valuable referral sources.
II. Office Matters
Selecting the Business Entity
There are several business entities to choose from: sole proprietor, general or limited liability partnership, corporation (professional association) or
professional limited liability corporation.
Sole Proprietor
The unincorporated attorney is a sole proprietor. The attorney is the business entity. If an attorney wishes to maintain a simple office life, at least in
the beginning, then the sole proprietor is likely the entity of choice. The income and losses of a sole proprietor are the income and losses of the
individual attorney. On the other hand, the sole proprietor is personally liable for business debts and negligent errors and omissions. For example,
if the sole proprietor signs a lease for office space and later breaches the lease, then the landlord can sue the individual attorney for damages. To
satisfy the judgment, the landlord may levy on not only the attorney's business operating account, but also the attorney's personal accounts and
real estate. Therefore, while this entity is simple to maintain, the liability is greater. (See Rule 7.5 Revised Rules of Professional Conduct regarding
firm names.)
General partnerships are similar to sole proprietors in that they are simple to form and maintain. No written partnership agreement between the
partners is required by law. Without an agreement it is presumed that the profits are shared in the same proportion as losses. Losses are assumed
to be apportioned equally among the partners. A written partnership agreement can reallocate profits and losses among the partners. Partnership
agreements also often spell out such terms such as the logistics of a dissolution or adding another partner.
Professional Limited Liability Company
A professional limited liability company (PLLC) is the next type of business entity. A PLLC is the same thing as an PLLC, except all members of
the PLLC are members of a profession (IE. doctors or lawyers), and the licensing board for the respective profession has approved the filing of the
Articles of Organization. Such companies are simple to form and maintain.
A PLLC is formed by filing Articles of Organization with the Secretary of State's Corporations Division. The forms for articles can be obtained from
the Secretary of State's Web site at or by phone at (919) 807-2225. The filing fee is currently $125. However, the State Bar must approve the Articles of
Organization prior to being filed with the Secretary of State. Such approval is requested by submitting an Application for Certificate of Registration
for a Professional Limited Liability Company to the Bar along with the executed Articles of Organization and a fee of $50. The appropriate form
may be obtained from the State Bar's Web site at or by calling the State Bar at (919) 828-4620. After the PLLC is organized, an
annual report must be filed each year with the Secretary of State at a current fee of $200. Further, in June each year, a renewal certificate must be
filed with the State Bar along with a fee of $25.
An Operating Agreement among the members of the PLLC serves the same function as a Partnership Agreement among partners of a
partnership. An Operating Agreement is not required, but is suggested to avoid unnecessary conflict among the members. No annual meetings
are required, unless the Operating Agreement states otherwise. Generally, the profits and losses of the PLLC pass through to the members as if
they were partners in a partnership. However, unlike a partnership, the members of a PLLC have limited liability for their acts taken on behalf of
the PLLC.
A professional corporation (PC) or association (PA) is very similar to a PLLC. As with a PLLC, all shareholders in a PC or PA must be licensed
attorneys. The first step in forming a corporation is to prepare Articles of Incorporation (forms available through the Secretary of State's Office at
the Web site address or phone number mentioned above). The executed articles must then be submitted to the State Bar for approval along with
an Application for Certificate of Registration for a Professional Corporation and the required fee. The State Bar will review the Articles of
Incorporation and approve them before forwarding them to the Secretary of State for filing.
The main difference between a corporation and PLLC is maintenance. After the articles are filed, the corporate officers must have an
organizational meeting or otherwise take actions in lieu of an organizational meeting to "breathe life" into the entity and issue stock to the
shareholders. Each year, the shareholders must have at least one annual meeting, and otherwise abide by the bylaws of the corporation. As with
a PLLC, a PA or PC must file an annual report with the Secretary of State, however, the current fee is only $20. Certificates of renewal must also
be filed with the State Bar with a fee of $25 to avoid administrative dissolution and State Bar sanctions.
The corporation provides limited liability for its shareholder owners and officers so long as the principals take actions on behalf of the corporation
rather than in their individual capacities. However, this limited liability comes at the cost of some inconvenience as corporate formalities must be
Tax Considerations
Regardless of the entity, any new business will need to obtain an Employer Identification Number (IN) from the Internal Revenue Service. IRS
form SS-4 must be completed and submitted to the IRS to obtain one. The form may be obtained from any local IRS office or on the Internet at . The instructions included with the form are sufficient to allow anyone, even a law school graduate, to complete it. The completed
form may be faxed to the Memphis IRS Entity Control Center at (901) 546-3916 with a signed request that the new IN be faxed back. This usually
speeds the process by a couple of weeks. The IN is required to open bank accounts and obtain loans in the entity's name and otherwise obtain
any other state or local tax identification numbers.
The entity must also obtain a North Carolina Withholding Identification Number from 4
the N.C. Department of Revenue by submitting a form NC-1. This form can be obtained from the NCDOR's Web site at or by
calling (919) 733-3991. If the entity is to have employees, then it must obtain a North Carolina Unemployment Tax number from the Employment
Security Commission by filing the ESC's form number NCUI 604 which is found at the ESC's Web site at or by calling (919)
733-7156. If the new entity is to have employees, it must meet further requirements regarding posting of notices and workers compensation
insurance. A review of the materials provided by the North Carolina Department of Labor on its Web site at or by calling (919)
733-0348 will provide adequate information for the new entity with employees.
Once these numbers are obtained, the new entity should contact a trusted bookkeeper, accountant or Certified Public Accountant to determine
Which tax forms will need to be filed and when. Generally, sole proprietors and general partners will file Schedule SE on their individual Form
1040 each year, paying estimated taxes quarterly. A partnership will file a Form 1065 Partnership Return annually with the IRS, and Form D-403
with the NCDOR. These forms provide the information to each partner as to each partner's taxable income and losses from the partnership. Such
unincorporated entities that receive more than $600 per year in income from any one source will also receive a Form 1099, reporting the amount
paid by the payer to the unincorporated entity. The 1099 provides information to the IRS and NCDOR regarding the entity's income from various
sources. Generally, the PLLC will be taxed as a partnership, and the discussion for partnership taxation above will apply to the PLLC.
Corporations are a little more complex when it comas to taxation. A corporation may be a Subchapter S corporation or a Subchapter C
corporation. Generally, a Subchapter S corporation allows "pass-through" taxation of the income to the shareholders so that the income of the
corporation is only taxed once. However, the Subchapter C corporation pays tax on the income, and then the shareholders must pay tax on the
dividend or other distributions from the corporation to the shareholders. Generally, most small firms will want to choose the Subchapter S election
to avoid adverse tax consequences. Such an election is made by filing a Form 2553 with the IRS. This form should be filed immediately after the
PA or PC obtains its new EIN via the SS-4 to avoid the potential of missing the short window of opportunity allowed to file the 2553. As above, all
IRS forms may be obtained from the IRS Web site at Finally, corporate entities should obtain and read Circular E, Employer's Tax
Guide, and Publication 3 34, Tax Guide for Small Business, from the IRS for a more detailed explanation of the tax consequences and duties of
All attorneys and other professionals in North Carolina must obtain and maintain a Privilege License from the North Carolina Department of
Revenue. The fee for the license is currently $50, and the license is valid from July I to June 30 each year. The NCDOR should be contacted at its
Web site or phone number listed above for further details on obtaining the license.
Some cities and counties across the state require similar privilege licenses to conduct business in their borders. A good starting point to determine
if a locality requires such a license is the Secretary of State's Business License Information Office (BLIO). The BLIO may be contacted via the
Secretary of State's Web site at or by phone at (919) 807-2166. This office acts as a clearinghouse for information
relating to starting a new business in North Carolina and is a great resource for all types of information in addition to licenses. Further, the local
city or county government should also be contacted to ensure that all local license requirements are satisfied.
While not a requirement like a license or Bar dues, you should consider in your budget the cost of volunteer professional dues.
As a lawyer and business owner your assets are continuously exposed to a variety of risks. You will want to consult with a knowledgeable
insurance agent to determine the best way to manage these risks. Your building, your employees and your tendency to procrastinate can all be
sources of exposure. Adequate protection is an important part of any business plan.
Any property and casualty insurer can provide protection for your office and its contents. The same policy may cover you in the event someone is
hurt in your office. In addition, depending on how many employees you have, you may have to purchase workers compensation insurance for your
employees. Failure to provide workers compensation can result in criminal liability under some circumstances.
Hiring employees increases your exposure. For example, a suit against your secretary who failed to yield in route to a supply store can be a
source of liability for you. An umbrella policy is designed to cover these risks.
The attorney who practices without malpractice insurance is like the trapeze artist working without a net. Although a firm may be incorporated,
insurance is needed to protect the individual members or shareholders from personal liability for their own acts of negligence. In short, malpractice
insurance should be procured before servicing clients. Contrary to what you may think, most malpractice insurance companies provide graduated
premiums that start lower and increase as the number of years of practice increase. Therefore, insurance for someone starting out is often not
The most important thing to know about any malpractice insurance policy is what is not covered by the insurance. For example, while a missed
deed of trust in a title search or a missed statute of limitations in a personal injury suit may be covered, contempt of court proceedings against the
attorney and bounced checks from the trust account are usually not covered. Any policy should be read closely to ensure that the attorney
understands what is covered. Special attention should be paid to whether the policy is a "claims made" or an "occurrence" policy. Most malpractice
insurance policies are "claims made" policies, meaning that they provide coverage up to the policy limits at the time a claim is made, and not
necessarily when the error or omission occurred. Therefore, it is advisable to always maintain malpractice insurance, even if the attorney ceases
practicing, in case a claim is made within the statute of limitations, but after the practice has ceased.
The second most important thing to understand about malpractice insurance is when to use it. Many basic policies require the insured to pay a
deductible of $1,000 before the insurance company begins to pay anything. Not only does your policy provide for it, but it is also prudent to contact
the malpractice carrier as soon as the attorney discovers a mistake that could ripen into a malpractice claim. The insurance carrier can provide
much needed damage control and even associate a "shadow" attorney who will help the insured attorney to avoid the claim by repairing the
damage before the client is damaged too badly. The insured attorney will have to pay the costs of the "shadow" up to the first
$1,000, however, it may be a small price to pay if a full claim is avoided, and a client is retained.
Finally, as the attorney's practice progresses and becomes more complex, the attorney should periodically review his or her policy to ensure that it
provides adequate coverage. Malpractice insurance in North Carolina is provided most often by Lawyers Mutual Liability Insurance Company. This
company provides free risk management continuing legal education seminars each year across the state which can help avoid a claim. The
company can be contacted on the Internet at or by phone at (919) 677-8900 for more information on malpractice insurance.
Many new attorneys open their new firms with borrowed money with no idea as to how they will pay it back. This is not a good idea. Many lawyers
feel that since they went to law school they should know everything needed about opening a business. This is probably incorrect, and you need to
have the courage to ask for help. Most community colleges in North Carolina have Small Business advisers who provide free services and advice
in opening a new business, including law firms. Other sources of information could include the local Chamber of Commerce, Better Business
Bureau or the U.S. Small Business Administration Office, which can be reached at (704) 344-6563. These persons will assist in preparing a
business plan and other financial projection documents.
Once the business plan is in place that shows a lender how borrowed funds will be paid back, the new attorney must adhere to the plan. Many
firms now use credit cards to finance purchases that bank lines of credit used to cover. Credit cards should be handled like snakes, and any credit
card offer should be scrutinized to ensure that low interest rates will not be steeply increased by one late payment, and to determine the terms of
the interest rates. Further, as with other lines of credit, purchases on credit cards should only be made with a plan as to how to pay off the debt.
The attorney should often project at least three to four months ahead to determine when and if fees will be generated to cover certain expenses.
An annual budget should be prepared, taking into account ordinary expenses such as research expenses (books, online and CD- ROM), rent,
electricity and employee overhead, as well as annual or semiannual expenses such as malpractice insurance premiums, privilege licenses,
jurisdictional bar dues and taxes to name a few. The budget helps to forecast cash flow for the business to ensure that the firm can weather the
lean times and not overspend during the good times. Some people suggest that before you open up you have enough financing to survive one
year without drawing any funds. On a final note for finances, it is a good practice to purchase equipment such as computers on three-year cycles.
For instance, the firm budget should include allowances to replace one-third of the office's equipment each year. This helps ensure that the
technology is fairly current and avoids many repair costs otherwise incurred.
The first step in creating billings is to create an attorney-client relationship. A written fee agreement resolves this issue. (You tell your clients to get
their agreements in writing. Shouldn't you?) Each attorney has his or her preferred way to document the relationship. Some prefer a formal
contract while others prefer an engagement letter countersigned by the client. In either event, the agreement should include the following:
1 . Date of the engagement
2. Client's name (very important for conflicts checks later)
3. Purpose of the engagement/description of what services are (and are not) to be rendered
4. Fee arrangement (see Rule 1.5 Revised Rules of Professional Conduct)
a. Hourly
1. How can the rate be increased? With/Without notice? Annually?
b. Contingency
1. Percentage before filing a complaint
2. Percentage after filing a complaint
3. Percentage on appeal
c. Flat
d. Merit
e. Combination
f. Costs and expenses are extra (postage, faxes, filing/service fees, deposition fees, expert
witnesses, mileage and parking, etc.
g. Finance charges/interest
5. Retainer details
a. Retained in trust account
1. Interest bearing? IOLTA?
2. Terms of drawing earned fees each billing period from trust account
a. Automatic; or
a. Only with client's written consent
b. Earned on receipt and nonrefundable?
6. Withdrawal from representation provisions for client and attorney (see Rule 1.16
Revised Rules of Professional Conduct)
a. Nonpayment of fees
b. Client deceit
c. Client unhappy with attorney's services
7. Fee arbitration notice (see Rule 1.5(f) Revised Rules of Professional Conduct)
The North Carolina Bar Association's Alternative Billing Commission has generated some standard retainer forms. This may be a good starting
place for you.
If the agreement is to bill hourly for time, plus costs (outside-the-firm expenses) and expenses (inside-the-firm expenses), it is a good idea to get a
retainer from the client before beginning work. The amount of the retainer is in direct proportion to the amount of work you're willing to do without
being paid. The retainer should be deposited into the trust account and withdrawals of earned fees, costs and expenses handled in accordance
with the fee agreement. Clients should be billed at least monthly. As your client list grows, consider billing a group of clients each week on a
rotating basis by alphabet or other mechanism. For example, bill the clients with names starting in "A" through "J" during the first week of the
month, "K" through "P" the second week and so on. You'll have to decide whether the help in cash flow is offset by the increased frequency of
doing bills.
Time entries should be maintained for all cases handled by the attorney for all clients, whether the billing is to be flat fee, contingency or hourly.
Time records may be necessary to justify a fee if a client, fee arbitrator and judge questions the reasonableness of a fee. Further, detailed time
records in the database of a time and billing program such as TABS III or Timeslips can provide invaluable reports showing how much time is
spent on each type of case, and whether the cases are profitable for the firm.
Bills should be easy for the client to read and include a detailed description of the work performed. While some clients may be satisfied with a bill
that states "for professional services rendered: $X,XXX.XX," most clients demand more detail in billings. Don't abbreviate legal terms or
procedures; remember your audience is your client. Show them your effort! Explain why you are worth the cost. Set out the date the work was
performed along with the hourly rate and a description of services. Bills should also state when they are due (i.e. "30 days from invoice date") and
the penalty for late payments, if any. Such penalties cannot exceed more than 1.5 percent per month. See N.C.G.S. Section 24-1 1. Any penalties
should also be disclosed in the fee agreement or engagement letter.
It is unlikely that a client will pay a bill that he or she never receives. Therefore, invoices and subsequent statements should be submitted to clients
in a timely and regular manner. Due dates for payment should be prominently displayed on the invoice or statement, and a system should be
established to follow up with phone calls and letters to the client to ensure prompt payments. Finally, it is a good idea to include "Address
Forwarding and Correction Requested" below the return address on every envelope enclosing a billing statement. This will ensure that the sender
receives the client's new address if she moves and leaves a forwarding address. This service costs 50 cents for every address that is returned to
the sender, but it ensures that the attorney is able to track the client's whereabouts should the client skip town and leave a forwarding address. It is
a very cost-effective way to avoid skipping clients.
Trust Accounting
Now wake up and sit up straight. This is important. There are many mistakes you can
make as a lawyer, but screwing up your trust account is not one of them.
All attorneys should understand that they must maintain separate trust accounts from their operating accounts for the safekeeping of client's
unearned funds. The State Bar publishes a question-and-answer format section in the annual handbook that answers most questions a new
attorney may have about trust accounts. This section is also available on the State Bar's Web site at
See Rule 1.15-1 to 15-3 Revised Rules of Professional Conduct. The North Carolina Bar Association Young Lawyers Division also publishes a
helpful guide. You can contact the NCBA by phone at 1-800-662-7407.
Funds being held for long periods in a fiduciary capacity, such as estate checking ac- counts, should be deposited into a separate account from
the firm's operating or trust accounts to further protect these funds. Unfortunately, it is not uncommon for a bank or a bookkeeper to deposit
earned fees into the firm's trust account or vice versa, simply because the account numbers on the two accounts at the same bank were similar.
This often leads to bouncing checks out of the trust account or, at the least, commingling the attorney's funds with those of the clients. Therefore,
in addition to the State Bar's guidelines, it is suggested that the attorney maintain the trust account at a separate bank from the regular account
and that differently colored checks and deposit slips be used for each account at each bank to help avoid mistakes. Further, using two separate
banks is a quick way for a new attorney to
establish relationships with more than one lending institution, which could be helpful later if the attorney needs a line of credit for business or
personal use.
The trust account must be reconciled twice each month: once with the main ledger; and again for each client's funds. The State Bar's auditor can
provide guidance on how to do this. Further, each client must receive at least quarterly statements of their trust accounts. in real estate closings,
the HUD-1 Settlement Statement serves the purpose of such an accounting. However, in long-term representation, when clients' retained funds
are held in trust until earned, the attorney must provide quarterly statements to the clients whose funds are retained. Some time and billing
software, such as TABS III with the TAS module installed can provide a running statement of trust account transactions to each client with each bill
if necessary. Further, programs such as QUICKEN, MICROSOFT MONEY or QUICKBOOKS can track and reconcile both trust and operating
accounts, as well as provide reports to clients that satisfy the State Bar requirements.
The firm's bookkeeper or other person making the deposits into the trust account must sufficiently describe the deposit on each deposit slip,
referencing the client's name or at least the file number or other identifying information so that the deposit can be identified later by an auditor. The
depositor must make copies of the checks and cash that are deposited into the trust account along with the deposit slip used to make the deposit.
These copies should be retained for future reference or State Bar audits. It is a good practice to make copies of checks that are deposited into or
withdrawn from a client's trust fund and placing those copies in the client's file to ensure that they are available quickly should the client or auditor
have a question. Finally, any withdrawals or deposits into the client's trust account should be documented in the file with a letter or memorandum
to the client explaining why the funds were moved and requesting the client to respond within a certain time period if they object to the withdrawal
or deposit.
Office Management
Every attorney has his or her own management style. It is unlikely that any employee will change that style. Therefore, the attorney should hire
only those whom he or she believes can adapt to and work within his or her management philosophy. When hiring employees, there are many
sources: referrals, courthouse clerks, employment agencies or classified advertisements to name a few.
The resumes should be reviewed quickly, and a simple thank-you letter should be sent to those prospects who are immediately rejected. Potential
employees should be contacted for interviews. The interview should be used as a time to get to know the employee and let the employee learn
more about the firm and the practice. The attorney should do as little talking as possible at the initial interview, listening to the prospective
employee to determine if he or she would "fit in" with the attorney. Otherwise, the prospective employee is likely to become a "parrot" of the
attorney such that the true colors of the prospect will not be apparent. In no event should the employee be asked questions relating to age (other
than old enough to work without a permit), religious background, ethnicity or other illegal questions. A second round of interviews may be
necessary after the candidates are narrowed down. At this stage, other members of the firm may want to meet the potential employee to get a
group's impressions of the candidate. The decision should be made quickly, and the new employee notified. Those prospects who are not chosen
should be notified as well.
The fewer paychecks you have to write the less bookkeeping, but most people need bimonthly payments. If at first you cannot afford a secretary,
consider an answering service.
Every firm with at least one employee should have an employee manual that spells out office policies and procedures including: vacations, sick
days, holidays, insurance, client confidentiality, office decorum, dress codes, Internet Acceptable Use Policies, mail and phone protocol, and other
work environment issues. The State Bar of Texas has compiled a guide for drafting an employee handbook which is available online at This guide is a good start at preparing such a book for new employees.
Firing an employee is never easy but sometimes necessary. Disgruntled employees diminish office morale and have the potential for sabotaging
cases and equipment, so it is better to end the relationship before harm can be done. If it is determined that an employee will have to be fired, it is
best to do it without notice and require the terminated employee to immediately return all keys and leave the premises. All passwords giving the
employee access to office equipment should be changed before the employee is fired to prevent computer sabotage. Only employees, leaving on
good terms, should be given the option of a transition period.
III. General Advice
Ethical responsibilities and philanthropic opportunities make your business different from a barbershop. Net revenue, income
taxes and managerial obstacles make it exactly the same. An understanding of basic business principles can raise revenue,
reduce costs and allow you to achieve the idealistic objectives that led you to law school in the first place.
Service businesses do three things: (1) they acquire work; (2) they perform work; and (3) they get paid for work. The act of
acquiring work is marketing. Successful marketing seems to be a very individual art. However, some guidelines and generalities
have seemed to bear the test of time.
Consider placing an ad in your local paper(s) letting the community know who you are, what you do and how to get in touch with
you. In addition, you may want to mail professional announcements to family, friends and associates, fellow members of the bar
and local business persons.
Lawyer-to-Lawyer Referrals
Other lawyers can be your best sources for referrals. Once you have selected a town, go around to all the local attorneys. Every Friday afternoon,
stop by three offices and introduce yourself. Tell them that you are starting a firm and where your office is located. Let them know that you would
appreciate referrals, and leave business cards. Some will welcome you. Some will offer advice. A few will offer help and referrals.
The relationships you build during these visits can be mutually beneficial. Established lawyers need a place to send cases they do not want. You
need to know that your phone is working. It will be important for you to meet lawyers who share your areas of practice, as well as those who do
Lawyers who do the same types of work that you want to do will be important to your practice for two reasons. First, they can answer practical
questions that are not answered in books. Second, they can send you potential clients. These potential clients usually bring one of three types of
cases: conflict cases, marginal cases and bad cases. Conflict cases are those cases the referring lawyer would take but for a conflict. Marginal
cases have merit but are an inefficient use of the referring lawyer's time. Clients who cannot win or cannot pay bring bad cases.
In the next few weeks, someone will come to your office from another lawyer's office citing a conflict. "Mr. Finch thinks I have a great case, but his
newspaper boy used to play on a little league baseball team with the defendant's nephew. He has a conflict." There may be another reason this
person is in your office instead of Finch's; this may be a bad case in sheep's clothing.
Marginal cases can provide a perfect training ground for new lawyers. New lawyers need experience, have low overhead and have little
opportunity cost. Delineating between marginal cases and bad cases is the trick.
Clients who cannot win or seek something that our legal system cannot provide have bad cases. Look out for those seeking revenge and those
advancing principles. Feelings fade but lawsuits last. Successful lawsuits are fueled by injustice and economics, and not by emotion.
Beware the bouncing client. Each of your five predecessors mishandled her case. Are you good enough to win it? A challenge has been made. "I'll
show you" is an impulsive and inappropriate reaction. A response from your ego instead of your mind will lead this critical client to share her
opinions of you in another lawyer's office before the ink is dry on your final notice to her for an unpaid invoice.
While all referrals are not created equal, a day or two of silence may lead you to the conclusion that even bad referrals are valuable. Experience
shows that bad cases take more time, cause more stress and are less profitable. The evaluation of cases and clients is an important skill for any
lawyer to have. It is good to learn these lessons early while your opportunity cost is low.
Accepting a case is easy; declining is the hard part. Honesty is the best policy, but a dash of diplomacy never hurt anyone. The following
exchange, although true, may lead to an argument. "Ms. Smith, I am sorry, but I will not be able to accept your case. You are angry and have
every right to be. You want to hurt Mr. Smith like he has hurt you. You want something that I cannot give. As much as I understand your position, I
cannot agree to help you do that which cannot be done." Instead, try an economic approach: "I understand your motivations for wanting to bring
this case. However, my opinion is that your legal fees would probably exceed your recovery. As a result, I cannot accept your case with a clear
conscience. Thank you for coming to see me."
When meeting potential clients, remember that you are marketing not only to them but also to the referrer. Let the potential client know that you
think highly of the referrer and appreciate the referral. Be cordial and professional. Get the facts. Learn the law. Is the desired result attainable?
What are the likely costs to the client? What are the benefits? Does this person seek something the law can provide? Can you help this person?
What type of fee structure would be appropriate? Finally, do you want to work for and with this client?
Lawyers who do other types of work may present great opportunities to develop mutual referral relationships. For example, during the course of
your weekly introductions you meet a family lawyer and a property lawyer. Your interests include criminal defense and personal injury. A small
referral network between the three of you may develop over time. The problem is that their phones are ringing. Yours are not. You have nothing to
contribute to the symbiotic relationship. If they have all the business they can handle, this may not concern them. More likely, they already have
relationships with lawyers within their own peer group. This should not discourage you from developing relationships with them. It should instead,
encourage you to develop relationships within your own peer group as well.
Professional Referral Relationships
The Chamber of Commerce and Rotary are examples of formal professional referral relationships. The structure of these groups
may vary by community. It will be important to identify your reason for joining. Are your objectives of an economic or social
nature? If your motivation is marketing, find out how many other lawyers are involved. What types of law do they practice?
In addition, you may be expected to participate in worthwhile, but time consuming, philanthropic activities. Philanthropy is
important but as a lawyer you will have many opportunities to serve your community. As a new business owner, it will be important
to select opportunities that present the most efficient use of your time and energy.
Informal relationships with other professionals can be crucial to your marketing plan. Other professionals are centers of influence.
Your dentist needs a real estate attorney to close his new house. His mother-in-law slipped on a puddle of shampoo at a local
grocery store. His hygienist drove after one too many daiquiris at a bachelorette party. If these needs are within your areas of
practice, you can help. If not, your network of legal professionals goes into effect. As you meet others who share your commitment
to service and professionalism, invite them to join.
Word of Mouth
Word of mouth is by far the most effective form of marketing. However, keep in mind that the reputation of a good lawyer takes
years to develop. A bad lawyer's reputation precedes him everywhere he goes.
Lawyer Referral Organizations
Lawyer referral organizations advertise legal services for many lawyers at once. A phone number is included in the ad. Those who
need legal services call the number. The calls are answered by the organization and then referred out to lawyers who pay a
monthly or annual fee. To determine whether you should participate, compare the fee to the expected revenue. Later, opportunity
costs for marketing dollars and your time will go into your analysis. Always be conservative with estimates of future revenue. A
lawyer referral organization to consider is the North Carolina Lawyer Referral Service, which is maintained by the North Carolina
Bar Association, and can be reached by phone at 1-800-662-7660 for more information.
Phone Book
"When I started my firm, I counted the days until my yellow page ad came out.
Before my ad came out, bad months were not so bad because the ad would be out soon. And good months were simply a sign of
things to come after the book was distributed. The day the book came out I got to work early. I poured a big cup of coffee. I moved
the phone to an area of my desk that was more ergonomically suited for a high volume of calls, and I waited. Ten hours later, I
began to rethink my emphasis on yellow page advertising in my marketing plan."
In general, yellow page advertising is expensive. It depicts lawyers as commodities like milk and butter. Lawyers buy increasingly
larger ads in search of a competitive advantage. They take more cases and generate more revenue. However, an increase in
advertising expense offsets this revenue. Despite additional hours at the office, net revenue remains the same. In the end, lawyers
get paid less for more work, clients receive less service for the same fee and the yellow page guy spends January in Jamaica.
Competing directories such as the Talking Phone present interesting alternatives. These alternatives may not be as widely
distributed. However, you may be able to buy a larger ad for the same price giving you a much bigger target in a slightly smaller
The effectiveness of yellow page advertising may depend upon your community. Like any expense, it should be continuously
evaluated for cost effectiveness. Is the ad generating business? Could you generate the same business elsewhere for less
money? See Rule 7.2 Revised Rules of Professional Conduct.
e-Legal Activities
The Internet presents the most interesting form of alternative advertising. You can have a Web site built for as little as $500. You
must then pay about $25 per month to host the site. More information can be conveyed on a Web site than on traditional forms of
advertising. Also, anyone in the world can look at it. The effectiveness of Internet marketing will increase as wireless technology
improves. As the Internet develops and technology improves, our dependence on paper phone books will diminish. A Web page
today may benefit you tomorrow.
The problem with Internet marketing is being found. Signing up with larger sites such as,, or can solve this problem. More lawyers make the site more visible. In addition, the
combined resources of member lawyers can market the name more easily than you can market
Friendly Fire
Referrals from friends and family present two problems to new lawyers. First, the referrer feels anxious about sending a friend to a
"green" lawyer. He or she may feel the need to warn the referee of your inexperience. The implementation of warm and
professional intake procedures almost always solves this problem quickly. Second, there may be pressure to reduce your fee.
Lawyers get a large portion of their business through personal contacts and acquaintances. Discounts reduce revenue. If you
charge a reasonable fee, discounts should be the exception rather than the rule. Discounts, however, may be appropriate for
particularly close friends or at the request of a particularly good source of referrals. Under these circumstances send an invoice
that shows the original fee, the amount of the discount, the reason for the discount and the actual fee. Expectation management
and confidentiality are critical when dealing with friends and family.
Other Marketing Ideas
Focus your market. Picking a specialty and marketing to that client base has advantages over a general practice and a shot gun
approach to marketing. Don't forget about court- appointed lists. Consider giving away advice in exchange for visibility. For
instance, write an article for the paper or a trade journal on the effect of a new law.
Keeping Clients
The Golden Rule
Imagine a lawyer in a far away state. His mother is traveling to Raleigh, N.C. for the birth of her first grandchild. He did not want
her to go alone. She asserted her independence. One dark and rainy night, while driving from hotel to hospital, she gets lost. Blue
lights and siren compel her to the side of the road. She is informed with a ticket that she is driving the wrong way down a one-way
street. She is saddened by the recognition of her limitations. She is frightened by what could have happened. She is embarrassed
by the role reversal of having to call her son. If you were that lawyer, would you send her to you? Would she be treated with
kindness and compassion? Would she be given the "come on, grandma, the meter is running" attitude.
The Rule of Completeness
A lawyer is not responsible for making her client feel good. She is responsible for giving the client accurate and complete
information. The client makes decisions based upon that information. The lawyer implements those decisions. The system breaks
down early for lawyers who give incomplete or inaccurate information.
Lawyers make the mistake of reporting facts in the "light most favorable" in three situations:
(1) out of a fear of losing a client; (2) to influence a client's decision as to whether to try or plead/settle his case; or (3) to cover up
a mistake. Giving inaccurate or incomplete information is always a bad idea. It is immoral and unethical. Also, bad information
impairs your client's decision-making process. Finally, even inexperienced and uneducated clients recognize a post-payment
change in prognosis. Such a change can undermine your client's trust in you and reflect poorly on all lawyers.
Bad News Travels Fast
Never delay giving bad news. Bad news should be delivered as soon as it is received. Like everyone else, lawyers tend to give
lower priorities to the things we dread. The recipient of bad news will look for someone to blame. The mirror is the last place they
will look. A delay in delivery can be the hook they need to hang the blame on you.
The Propriety of Promises
Never promise results. It is hard enough to maintain control over our own thoughts and actions. It is impossible to control the
thoughts and actions of others. Results that depend upon the actions or decisions of others should be predicted with caution and
with reference to best and worst case scenarios.
Great Expectations
It is amazing how selective hearing works. For example, when you quote a recovery to a
personal injury client, they hear only the higher number in a predicted range. A typical scenario would be: injured person walks
into your office with a broken arm and $10,000 in medical bills. You perform superficial calculations and conclude that he stands to
recover $40,000 less one-third plus costs. As visions of Vegas dance through your head, you blurt out that he is looking at a $3545,000 claim. Three years later after discovering that the otherwise judgement-proof defendant has a measly $25,000 in
coverage, you may regret that offhanded remark.
On the other hand, criminal defendants hear only the low number in a predicted range. Under structured sentencing, the pleas
agreed to by defense lawyers and assistant district attorneys concern charges not sentences. Judges are left to calculate
sentences within a predetermined range based upon statutorily enumerated factors. Structured sentencing has taken some of the
guesswork out of criminal defense. However, even when giving a statutorily mandated sentencing range, make sure the defendant
hears and acknowledges the high end as well as the low. Otherwise, you may be your client's next victim.
Business Is Business
Distinguish up front pro bono cases from paid cases. If you make a conscious decision to take a case without payment because it
is "the right thing to do," then you have done a good thing. If you take a case without payment because you said pay me next
week and were ignored, then you have set a dangerous and expensive precedent.
Return calls daily. After a long day in the middle of the week with an early morning tomorrow, it is sometimes hard to return phone
calls. It is especially hard to return calls to a long-winded client who will ask you again, "When do you think my case will settle?"
Days like these were not in the law school brochure. However, returning phone calls is your responsibility. Failure to do so can
result in a grievance, which you may or may not successfully defend after hours of aggravation. See Rule 1.4 Revised Rules of
Professional Conduct.
Lawyers, like many professionals, face intricate ethical dilemmas daily. Suffice it to say, it is not always safe to let your conscience be your guide.
Ethical standards within the legal profession are codified and are not necessarily followed by doing what feels right. Lawyers must know and follow
the Rules of Professional Conduct. Failure to do so can result in damage to your reputation, your wallet and your law license.
Lawyers should adhere to the highest ethical standards for two reasons. First, it is the right thing to do. Second, because it is effective. Ethical
conduct creates credibility. Credibility is the cornerstone of advocacy. Better advocates make better lawyers. See Rule 2.1 Revised Rules of
Professional Conduct.
An Interest in Conflicts
A lawyer cannot simultaneously represent potentially competing interests without con- sent and the reasonable belief that neither
interest would suffer as a result. See Rule 1.7 Revised Rules of Professional Conduct. The rule seems simple enough. Identifying
them is the hard part.
Some situations are readily identifiable. For example, codefendants in criminal cases, passengers and drivers in auto negligence
cases, married clients who now want you to represent them in a divorce. The problem is more difficult to detect when the
competing interests are separated by time. A database containing names of clients and their adversaries can help. New cases
should be screened against the interests you have previously represented and opposed.
The stakes are high when representing people. This should give you a healthy fear of biting off more than you can chew. The first
Rule of Professional Conduct requires competence. The results of taking on this kind of case, without help, are dissatisfied clients
and an unsatisfying and stressful experience for you.
As a lawyer, you are being intrusted with information that is not for public consumption. Adopt the CIA's slogan, "What you say
here, what you see here, let it stay here when you leave here." See Rule 1.7 Revised Rules of Professional Conduct.
Tips for Success
Finally, some disparate tips:
1. You cannot control the outcome of a case, only the professionalism with which you conduct yourself as a lawyer.
2. Be as courteous to other lawyers as you are to your clients. Doing otherwise will undermine your credibility, as well as the
credibility of your profession.
3. Learn from your mistakes.
4. Mentor younger lawyers so they can learn from your mistakes. All lawyers share in the responsibility of passing knowledge from
one generation to the next.
A Parting Word
Get a copy of How to Start and Build a Law Practice by Jay Foonberg and read it. Another useful book is Flying Solo, A Survival
Guide for the Solo Lawyer by Joel Bennett. Both are available from the ABA at (312) 988-5522. The North Carolina Bar
Association has a list of videos (for clients, staff and-you) as well as a list of other helpful publications. Contact the NCBA
Membership Services Department at 1-800-662-7407 or (919) 677- 0561.
Contributing Authors: Doug McClanahan of Jordan Law Office; Joe Seagle of Worley and Seagle; and Clarke Speaks of R. Clarke Speaks
Attorney at Law.
2001, North Carolina Bar Association (all rights reserved)
Permission is hereby granted for the copying of the pages or portions of pages of this book by or under the direction of licensed attorneys for use
in the practice of law. No other use is permitted without the express written consent of the North Carolina Bar Foundation.