I think one of the most common questions I get asked is, “Jordan, I want to start my own firm, but I have like $1700 in my savings account. Can I start a law firm with no money?”
The simple answer is yes, yes you can. It doesn’t take much more than a law license, a working computer, a printer, and a cell phone to start a law firm.
But here is the better question. Will your law firm succeed in the long term if you start it with no money?
Well, that answer is a bit more complex…
I will preface this post with a true story. A friend of mine was abruptly laid off from biglaw. He couldn’t find a job so he decided to start his own practice with no clients, an office from home, and very little money in savings. During the startup period, he defaulted on his mortgage and his house was sold at sheriff’s sale. He also defaulted on his motorcycle loan, and rides a pedal bike around the neighborhood. At one point, he was on food stamps. Yes, a lawyer who once made a six figure salary working for a law firm was on food stamps. A few years later, his solo practice finally pays his rent, but he lost everything in the process.
When you start a law firm with no money, and no supplies, you are basically taking out a loan from yourself, secured against your future earnings. The repayment terms are insanely usurious – this loan gets paid back with your blood, sweat, and tears. And it gets paid before all your other bills. The less money and experience you start with, the bigger the loan is. Until the loan is repaid, every single dollar that comes through your door will go into repaying this loan. And the loan gets paid before all your personal expenses like your mortgage and electric bill.
This is how it happens…
You hang up a shingle with no money and no supplies. From there, let’s say you get very lucky and during your first month of practice, a client comes in and pays you a flat fee of $10k right up front. After taxes you get to pocket the $10k because your overhead is so low, right? Maybe pay your mortgage, grab a drunk with your buddies, and put the rest into savings? I mean, $10k is a lot of money, right?
Not so fast. Judge Wallop asks you to submit four hard copies of that 2000 page brief to his chambers. (“but Judge!!! That’s so 20th century!!!! I read on the internet that law is paperless!!!!”) So now you need to take some of that money you and buy a heavy duty printer, ink, and a carton of paper. Putting together the brief was a chore in and of itself, so you had to buy a legitimate copy of Adobe PDF rather than using free PDF software. Oh, and your computer from law school, that old laptop you bought in 2007, wasn’t able to handle the new software, so you need to buy a new computer, too. Now the case is going up on appeal and you need to get licensed in the United States Court of Appeals – that’s another $225 to get admitted. Man, the file is getting huge! So now you need a filing cabinet just to house all of this paperwork, but you didn’t realize how expensive filing cabinets are…
All of this is money right out of your pocket.
Plus, while you are spending money left and right just to acquire the basic stuff you need to handle the case, you have to pay other recurring expenses like your malpractice insurance, bar dues, and phone bill. Not meeting your professional obligations could have implications on your law license,. If your phone gets shut off and you can’t communicate with the court or clients, or your bar dues don’t get paid, the disciplinary board is going to come calling.
It doesn’t take much money to start it up a law firm, but it takes money to keep it going.
This cycle of robbing Peter to pay Paul ultimately leads to burnout. You just put a significant amount of time and energy into the case, and when all was said and done, your fee was probably too low to begin with. But because you borrowed money from yourself, all the fruits of your labor went right back into the firm. The money went into purchasing the things you needed in the first place to handle the case, but can’t pass off and expense to your client. (you can bill your client for printing costs and postage, but not for your new computer, software, court admission etc.). You chose to skimp on the expenses at the beginning, and now you’re paying it back. You have nothing to show for it.
You just worked for the privilege of working.
Revenues – expenses = profit.
Profit is what you pay your mortgage with. If you have no profit at the end of a given month, you don’t have a way to pay your mortgage and electric bill, let alone having a beer with the client when the matter resolves.
Continue this cycle for a few years and now you know why many solos who start their firm undercapitalized burn out quickly.
Oh, and did I mention that you actually got lucky in my scenario? At least you found a client willing to pay you $10k for your services. Are you going to have another $10k client next month? Or even this year? What if your average client matter is $750?
Starting a firm is hard work. Very hard work. And yeah, it takes money to keep it going. So you either have to pay those expenses at the beginning or later down the line. If you decide to pay them down the line, you end up working every single hour of the day just to hopefully break even and pay your bills. Maybe for years. Anyone who tells you that solo practice is a great way to have more time and flexibility is trying to sell you something. Solo practice is not the land of milk and honey like Solo Practice University wants you to believe.
So yes, you can start a law firm with absolutely no money, and even right out of law school. But the less you start with, the bigger your loan is. The larger your loan is, the harder you will have to work to succeed, and the more personal sacrifice it will involve.
I’m not trying to discourage you from doing it, it certainly can be done. If you’re an unemployed new law graduate, it’s probably better to take a crack at it than sitting in mom’s basement playing Mortal Kombat. Just understand that it’s going to be a significant amount of work.
And there is some good news… the loan can be repaid.
As you’re around longer, good clients will be more willing to hire you. You’re no longer a guy whose practice has been open for a minute, and you have a reputation for actually knowing what you’re doing. You will meet more people, and if you treat them right, they will refer clients to you. Your client base gets better over time, as you become more established, and develop a reputation for excellence. But none of that happens the second you open the doors – it takes time.
Someday the loan will get repaid, but only after you’ve lost a lot of blood, sweat, and tears. Eighteen months in and I am still repaying mine every single day, and we were not grossly undercapitalized when we started the firm.
Starting a law firm takes awhile, and it involves a tremendous amount of personal sacrifice. If you have no money when you start, it will involve even more personal sacrifice. To quote Plutarch, “those who aim at great deeds must also suffer greatly.”