Here are seven common financial challenges faced by solo attorneys in the US and some strategies for overcoming them.
#1 Inadequate Cash Flow
Cash flow is the money moving into and out of a solo practice each month. It comes in as clients compensate the firm and it goes out in the form of overhead expenses. When more money moves out than comes in, the practice experiences inadequate cash flow.
Law firms routinely go through peaks and valleys – times when business is booming and times when nothing new is walking through the door. That’s why it’s very important for solos to keep an eye on their cash flow during the peaks, so they can maintain their practices during the valleys.
In an ideal situation, solo attorneys will have enough savings to cover six months of expenses, but there are other steps that solos can take to increase cash flow, such as:
- Sending invoices in a timely manner
- Offering alternative payment options
- Billing often and consistently
- Offering online payment options
Solo law firms simply cannot operate without sufficient cash flow, so this is a vital part of building and maintaining a successful solo law practice.
#2 Excessive Overhead Costs
Even with adequate cash flow, excessive overhead costs can keep solo firms from reaching their full profit potential. Solo attorneys need to consistently keep an eye on their monthly expenses and consider ways to keep them under control.
While some overhead costs are unavoidable, others can be reduced or eliminated altogether. For example, solo lawyers may not need an expensive office in a prime location. They may be able to run their firms successfully with a less expensive home office or virtual legal practice. Solos can also reduce staffing expenses by outsourcing certain tasks and only contracting support staff on an as-needed basis.
#3 Stagnant Earnings
Reducing expenses is important to maintaining a solo practice, but increased earnings are also a necessity. Solos should always keep an out for growth opportunities. It may mean taking on additional billable hours or handling a few of counsel cases for another law firm. Stagnant earnings may also mean that it’s time to ramp up marketing efforts and attract new clients.
#4 Insufficient Assets
Solo attorneys need to be careful in the way that they view and handle their law practices. While it is a channel for self-employment, it is also a business asset that needs to be treated as such. For example, a solo attorney has cut expenses and improved cash flow to the point where there is money left over at the end of the month. What that solo chooses to do with that surplus can have a major impact on the long-term health of the firm.
Solo attorneys need to reinvest revenue back into their practices with a strategy for realizing a return on that investment. Maybe the reinvestment will be more support staff or improved technology. Each of these options can ultimately result in greater opportunities and profits.
#5 Poor Fee Setting
Solo attorneys often choose to charge less for their legal services than their big law counterparts, and they end up earning far less than they should for the work they complete. Solos take this route because they think it will attract more clients, but potential downsides exist with this type of strategy. First, these solos send a message that their work is not as valuable as higher-priced attorneys. They may also prevent their practices from fully growing into their potential.
Solos need to be thoughtful when setting their fee rates. While it’s okay to consider the going rates in their area, they should never underestimate the value of the work they provide. Being a solo doesn’t equate to less skill or less knowledge. So, solo lawyers need to charge legal fees that adequately represent the worth of their services.
#6 Inadequate Administrative Support
As solos seek to reduce overhead costs, they may cut down on the number of staff members working within the firm. While these measures may save money, they can be detrimental to the effectiveness and efficiency of providing legal services. An inadequate administrative staff can lead to missed deadlines, poor client communications, and an overworked solo attorney.
Outsourcing can be a viable option for solos who need administrative help at a low cost. With outsourcing, solo law firms contract with other legal professionals as needed. For example, a large matter may necessitate assistance form a legal assistant or paralegal. Instead of hiring an employee, the solo can bring on help temporarily until the need subsides.
#7 No Competitive Edge
Solos need to stay competitive, often against much larger firms with substantially more resources. This can lead to a situation where the solo firm is not reaching potential clients. But financial limitations do not have to keep solo firms from marketing to new clients. An enhanced website, guest blogging, and public speaking can all result in greater earnings.
Alternative fee arrangements, like fixed fee billing, and niche practice areas can also help solo law firms develop a competitive edge. Solo attorneys must remember that they have something special and unique to offer. They should embrace those differences instead of running from them.
Solo Attorney Can Overcome Financial Challenges
Solo attorneys face some common financial challenges, but they can overcome those obstacles with some planning and mindset changes. With reduced overhead costs and greater cashflow, solo practices can thrive among the largest of law firms.
About Erika Winston:
Erika Winston is a freelance writer with a passion for law. Through her business, Personal Touch Edits, she helps legal professionals deliver effective written messages. Erika is a regular contributor to TimeSolv and a variety of other publications.