I made the transition from government service to my own practice back in 2013. Six years later my Philadelphia appeals law firm is not only surviving but thriving. I’d like to share with you three tips about keeping costs down (and profit up!) that I wish someone expressly told me when I first started out on my own. Frankly, I had to learn these the hard way.
These tips can be applied to any small business start-up, just substitute what you are doing, selling, or making every time I mention a lawyer or law firm.
Why must a small business keep costs down? Profits, of course, but a couple of other reasons as well. In my case, I have had to be cost-conscious because the practice of law is a very competitive and a ceiling applies to limit what one can charge to the amount that is comparable locally. By charging too much an attorney can price themselves out of the local market in their practice area.
Another consideration for any business is that when you keep costs down, you create the opportunity to pass some savings along to your clients or customers. This is something that firms with a lot of overhead can’t do.
First, You Must Think of Yourself as a Business Person Running a Law Firm, Not an Attorney Running a Business.
I mention this first because it is the most common misconception attorneys have when starting their own practice. Of course, an attorney must be competent to practice in his or her chosen areas of law, however, that competence does not ensure the competent management of the finances of the firm. This goes for any small business start-up – a person selling widgets is not just a widget seller, but the manager of the business selling widgets.
Here are some basic financial choices any small business owner must make:
Do I need a brick and mortar location?
Many service-based businesses can and do operate from virtual offices. A virtual office can offer a small business owner part-time meeting space, receptionist and phone answering services, and a professional mailing address at a fraction of the cost of renting office space full-time.
If your business is in manufacturing, being sure not to rent or own a larger space than you need is essential not only to keep the rent or mortgage down but to save each month on the utility costs for space. If you already have more space than you need to consider leasing as storage or to another business.
Do I need insurance? How much?
It varies by state, but generally, any business having employees requires worker’s compensation insurance. Most businesses also require General Liability and Property Insurance, as well as Commercial Auto if your employees drive for you. Again, although it varies by state, many providers of a service (like attorneys!) are required to have Professional Liability Insurance.
A Business Owner’s Policy (BOP) can bundle all of this, often less expensively than single policies. Get references from your colleagues and peers and meet with several agents to discuss your needs. Insurance costs can vary widely depending upon type and amount of coverage. It is as important to avoid being overinsured as it is to avoid being underinsured. Don’t pay more than you have to.
What employee(s) do I need to hire?
First, consider whether you can avoid hiring employees. For example, a bookkeeper can be replaced with an online bookkeeping service that handles everything from payroll to paying the rent. Independent contractors can be used for services you only require part-time.
If you require full-time employees, let me tell you, it is a false economy to offer wages or salaries that are too low. If you do, you risk attracting only the less-skilled candidates. It is likely that these are the candidates that will not work as hard or as well, and who would be willing to move on if a better-paying opportunity arose.
You want to attract the best employees you can within your ability to pay. Pay them fairly and they will do good work for you and stay on with you.
Second, Aim to Minimize Soft Costs.
I was told by a successful business owner that I should divide my expenses into hard and soft costs and to educate myself as to the hard and soft costs of running my firm before I opened.
The hard costs are those that remain the same every month or every year – these include rent or mortgage, state licensure fees, membership fees to professional organizations. Minimize these when you first establish your business so that you have a basis to craft your budget.
The soft costs are those that vary, and they should be managed closely to avoid waste. For example, office supplies should be purchased in bulk, which is often significantly discounted. If continuing education is required by your state and in your field, this can often be done online and at home in the evening – keeping you working during business hours.
Third, Do Not Skimp on Marketing.
Skimping on marketing is a false economy. Make sure your marketing is thorough and effective and reaches your target audience by keeping track of what marketing effort results in new clients (or sales, or whatever). Keep on top of it.
Marketing is the thing that will put you in front of prospective clients or customers. And, know that the most effective marketing effort is providing a high-quality service or product. Make sure every client or customer leaves satisfied.
You could be the best at what you do, but if no one knows about you, your business will fail. I can’t stress enough that these days, you must have a good website development company create a site for you.
People shop for just about any product or service online these days. Your site development company will optimize your site for both content and structure so that potential clients or customers will find you AND they will be launched on their “buyer’s journey,” eventually hiring you or purchasing your product.
I can’t think of one successful small law firm that does not have a really good website.
Reviews and Referrals
Not only do people shop online these days, but they depend on online reviews when choosing. Your site developer can help you create a method by which your customers or clients can complete a survey about their experience, if their experience was positive, they can complete an online (positive!) review for you.
Software that automates this process will also create an email list that you can use to keep former clients apprised of, for example, a particularly good case or some development in your area of practice, or a new product, or a sale of your products. Don’t spam your former clients – one or two emails a month is enough.
A steady email campaign will keep you in the minds of former clients and customers, and if they find out anyone they know has need of your services or your products, it is likely they will refer them to you.
I hope this helps you keep costs down and get your business going, and I wish you the best of luck.