How Much Money Does it Take to Start a Law Practice?

Q: How much money should I have saved in order to start my own practice?

A: The actual dollar amount can vary from as little as a few thousand dollars to $100,000 or more, depending upon how you live, what kind of practice you start and your tolerance for accumulating debt.

To figure out how much you'll need, calculate a full year of living expenses including debt service (i.e., student loans, car payments, and mortgage), three months of office overhead, and whatever amount you want to invest in office equipment and furnishings. This figure represents your maximum outlay.

Be mindful that different areas of practice and different kinds of clients may require more or less expense. A criminal defense attorney may be able to find an inexpensive office close to the county jail where few other businesses are interested in being located, but a trusts and estates attorney serving wealthy retirees may need to keep an office that is centrally located and therefore much more expensive. Attorneys that work on contingency may need significant resources to cover the costs of litigation in addition to their office expenses until their first successful cases are completed. Attorneys in your area of practice locally may be able to tell you an accurate amount necessary to cover expenses, if they are willing to share that information. Otherwise you will need to generate some estimates.

This figure can be reduced by considering cost-cutting tactics. Sharing office space with another attorney can reduce expenses significantly. An office-mate practicing in a different area of law can increase traffic for the whole office and you may be able to share marketing expenses, split the cost of some kinds of office equipment, share the expense of a secretary, or refer business to one-another. A more established attorney working in a similar area of practice may be willing to trade office space for services. Drafting documents and making appearances on the behalf of another attorney can become a business in-itself, while also providing valuable legal experience and courtroom exposure.

Another option is to use an office-share service. These businesses will provide you with a desk in the office of a professional building and the use of facilities as well as an answering and postal service, though these rentals sometimes limit the number of hours you can use the office in a month. On the other hand, such services sometimes permit the use of multiple facilities, which can allow you to meet with clients and test several markets before investing in more permanent space.

You can then reduce the amount you'll need to accumulate by the fees you expect to generate from clients you will be taking with you and other certain sources of income (like your spouse's). Otherwise, assume you'll bring in no money for three months and that you'll break even (just covering office overhead) the first year. (That, of course, assumes you have a marketing plan in place to bring clients to your office.)

If the sum you need to put away seems impossible, you can finance your foray into self-employment. Some lawyers arrange for a line of credit secured by their home before they leave their job. Others obtain a bank line of credit to set up their new businesses. Still others accept several credit card offers and live off plastic. This last option should be avoided if possible since high interest debt can keep your business from becoming profitable.