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What You Need To Know and To Do
YOUR PRODUCT AND WHO WILL USE IT
SETTING UP YOUR OFFICE
EQUIPMENT AND SUPPLIES
CLIENT BILL OF RIGHTS
CLIENT ESCROW ACCOUNTS/IOLA
COMMUNICATION WITH CLIENTS
The decision to start a practice either on your own or with partners is an exciting decision. It will give you the opportunity to be your own boss and to create a culture that reflects your personality and values. It will be YOUR FIRM and a creation that you can be proud to be associated with.
However, once you’ve made the decision, you may be a little overwhelmed about what are the next steps. This pamphlet is intended to help you get started. While simplistic on its face, it asks basic questions and raises basic issues that you need to address as you develop a plan of action and begin your practice.
We suggest that you write your responses to the questions and issues raised below, and keep them in a place where you can reference them easily. It should make day-to-day decision- making easier. A written plan creates a road map so you know where you are going when things start to get hectic.
You will already have certain decisions made and policies in place so you won’t have to decide them in a rushed fashion. If you get frustrated answering the questions or don’t want to take the time to do so that may be a clue that having your own business is not for you. You must remember that in addition to practicing law you have a business to run. This business needs strategies and goals, cash flow and profits and operating policies. Answering these questions and addressing the issues raised will start you on your way to having those.
Once you are up and running you may find that you will want to change some of your original responses. If you do, make sure you ask yourself why you are making the change. If you have a legitimate answer, such as you no longer enjoy a particular area of the law, go ahead and change your plan. If it’s because things are not working out as you planned, call the Small Law Firm Center before you give up your dream. Maybe we can help.
1. Do you know your ethical responsibilities? A review of the Canons of Ethics and the other court rules relating to legal practice is a good place to start planning your practice. It is important you keep these responsibilities in mind as you are considering your firm’s name, marketing approach, client management, and financial matters. You can find the New York Lawyer’s Code of Professional Responsibility This Association as well as other bar associations have ethics opinions on their web sites to provide advisory opinions pertaining to particular sections of the Code and an ethics hotline to discuss your particular ethical issue.
What service or help are you offering to potential clients, for example personal injury, litigation, divorces, immigration, adoption, wills, estate planning, general corporate and real estate? Will you only offer one area of the law or will you offer several? If you will offer several, are they compatible? Compatible areas of the law are either ones where the substantive law overlaps, such as tax law and estate planning, or where the same client base needs both areas of practice, such as real estate or estate planning for your general corporate client. What type of person will need the help you are offering? Where do you find these people? Are there any people in particular who are your targeted clients? If so create a list of their names, addresses, phone and fax numbers and email addresses. For businesses, identify a contact at each place. List the type of service they need that you want to provide to each.
Do you want to form a professional corporation or other type of professional entity? What are the benefits to doing business, if any, as a professional corporation instead of as an unincorporated sole proprietor? If you have one or more partners, do you want to form a limited liability partnership or limited liability company? There are tax consequences, as well as the liability issues, related to this decision. You should consult with your accountant in making this decision to confirm your understanding of the tax consequences.
Picking a name for your firm is important. If you are practicing by yourself, you must use your own name. If there are more than two of you going into practice together, you must remember that firms with three or more names are usually only known by their first or first and second names. Under the New York Code of Professional Responsibility, the firm may not use a trade name (such as Divorces PC). DR 2-203.
- An executive suite with resources available on an as needed basis is one option. You should ask, “Who else has offices there? Do you want to be with other professionals or with business clients? Do you care how others who use the executive suite dress? Will it affect your clients?”
- An office within a law firm’s office is also a choice. Do you want to use its library, office equipment and resources, and network and develop friendships, in that atmosphere?
- Your own office with your own equipment and your own staff.
Working at home can be the easiest and least expensive way to begin. However, there are pitfalls to working at home. You must have a specific work place where you can concentrate and not be distracted by other activities that may be going on in your home. The kitchen table may not be the best location. You also need the discipline to go to your workspace and not get distracted by things that need to be done around the house. Pick a time every day by which you will begin working and stick to it. Anyone who is at your home during the day should know that you are working when you are in your work area and should not be disturbed with any more frequency than they would call you at an office (of course, young children may have trouble understanding this).
If equipment and supplies are not provided by the location you have selected as your office, then you need to identify the office equipment you want. Ask colleagues what they are using and why. You should always contact at least two vendors to compare prices, delivery cost (if any) and other services.
You are required to post a Client Bill of Rights conspicuously in your office (In 1998, the Appellate Divisions of the New York Supreme Court, added Part 1210 to Title 22 of the Official Compilation of Codes, Rules and Regulations of the State of New York, which sets forth the text of the Client Bill of Rights.)
Please note that a special rule applies to attorneys representing clients in domestic relations matters. Rule 1200.47 of the Official Compilation of Codes, Rules and Regulations of the State of New York states: “Client's Statement of Rights and Responsibilities in Domestic Relations Matters. In domestic relations matters to which Part 1400 of the joint rules of the Appellate Divisions is applicable, a lawyer shall provide a prospective client with a statement of client's rights and responsibilities at the initial conference and prior to the signing of a written retainer statement.”
If you will need to hire your own secretary, you can place an advertisement with the Association’s Legal Career Center. You can also enter into an agreement with a placement agency. A common fee arrangement is 15% of the salary (with an industry increase of 3-5% expected). Most agencies require payment within 30 days of placement but will refund the fee if the person is terminated for any reason during the first 90 calendar days of employment. However, you can always try to negotiate an arrangement you prefer. Be aware that the law in New York requires you to provide Workers’ Compensation insurance and DBL insurance, which provides coverage for non-work related disabilities. Check with the Association’s endorsed insurance brokers for information on these requirements.
Temporary help, while more expensive on a per hour basis, may be better for your initial needs. You might find that you only need someone two or three days a week at the beginning. You may be able to work out a staff sharing relationship with another firm. Association members may post, at no charge, a request for or the availability of a staff sharing relationship. This free Member Posting is available through the Small Law Firm Center section of the Association’s web site.
You may also engage the services of a temp agency. This approach also lets you try out different people before you make a commitment. If you are going to follow this approach, make sure you explain it to the agency you use since some of their temps do not want full-time jobs. There are others, however, who have signed up as temps with the hope of being hired permanently. In
selecting a temp agency, you should ask the cost of changing someone from a temp to your employee. The fee is usually similar to that charged by a placement agency for hiring a full time employee.
Insurance is an important aspect of your business management plan. It is the major tool in managing all of the risks associated with the operation of any business. It can help to protect your assets and income and will provide vital defense services in the event of a professional liability claim. In the long run, insurance protection is the most economical way to reduce your potential cost in the event of any sudden or unexpected accident that could impair your ability to sustain your practice.
Check with the Association’s sponsored insurance broker to obtain important coverage for your practice. Contact Mercer (888-882-2269 or www.NYCBAMemberInsurance.com) for health, life and business owner's policy, personal disability insurance, workers’ compensation and professional liability insurance.The amount of your premiums for medical and life insurance will vary depending on, among other things, the ages of the insureds, the location of the law firm, and the amount of the deductible chosen. Please call Marsh for quotes specific to your needs.
When it comes to professional liability insurance, the premiums you will pay depend on a variety of factors – from the deductible and coverage limits you want, to your area of practice and prior acts exposure. It pays to shop for customized protection that suits your specific needs. For example, the Association sponsors three different plans: Full-time Professional Liability for Sole Practitioners and Law Firms; Part-time Professional Liability for Sole Practitioners; and Corporate Professional Liability for Moonlighting Attorneys; visit www.CityBarLPL.com for more information.
Workers’ compensation coverage is required by the state for all employees. You may or may not choose to provide coverage for yourself as well. Assuming an annual payroll of $30,000 for your staff, you may be able to obtain Workers’ Compensation insurance for as low as $35/month.
Disability Income coverage is vital to replace your personal income stream in the event of a disabling illness or injury. Many financial planners recommend you secure coverage that equals 60% of your gross earned income to help ensure that you are adequately covered. Premiums for this insurance will vary, depending on (1) your age; (2) the waiting period you select before benefits are payable; and (3) how long benefits are paid.
This will get you started. After you have more disposable income, you may want to consider increasing your insurance coverage.
Unless you select an application software provider (discussed below), your software should include a word processing program, a time and billing program and an accounting program. If you have a litigation practice, one of the many litigation support programs should be considered. We also suggest that you consider a document management program, although some people think that a solo or small law firm does not need the searching and document control feature provided by a document management program.
In connection with software, there are two options open to you currently. You can buy the software you want and provide or arrange for your own support. Or you can utilize one of the growing breed of companies called application software providers (ASP). ASPs have different approaches, but each permits you to lease the software initially (hardware in some cases) and will assist with support and maintenance of the software. While this is more expensive in the long run, in the short run, the monthly lease payments are less than the cost of puchasing the software outright. In addition, ASPs give you the benefit of trying out different software before you make the final choice. As you have an ethical obligation to keep client information confidential, you must carefully review how the ASP works and what systems are in place to preserve client confidentiality.
You should also keep in mind that if you start out on one product, both time and money will be spent converting documents and information from one system to another, so that changing software products is not always a simple process. Any conversion effort is time consuming. If you can avoid it, you should. However, as your practice grows, depending on the software initially selected, a conversion may be inevitable.
In this day and age, investing in paper books is an expense that can be avoided initially and perhaps forever. An increasing amount of information is available through the Web and through on-line services. You can obtain free access at the Association’s library to Westlaw and Lexis. All you need to do to reserve a time slot is call the Library Reference Desk at 212-382-6666. You can also find many form books at the Association’s library.
There are, of course, exceptions to the rule of “no paper books.” You may practice in an area where having handy a copy of rules, such as rules of civil procedure, that you can mark and annotate may well be worth the expense. If there is a “bible” that every practitioner in your area relies on, then it should be part of your library. However, if you are only going to use the book once a month, think twice about purchasing it since the Association’s library probably has a copy you can use.
How will you assign client numbers? How will you assign matter numbers? If you worked at a firm, you may want to use its numbering procedures. If you are just starting out, speak to other small law firm practitioners and see what procedure they follow. Make sure you ask if they like it or if they would change it in some way. You can also call the Small Law Firm Center to discuss this. Once you have assigned client and matter numbers, you should set up all new clients on your computer following the same format. You must also decide what you will keep on paper and what will only be on your computer. There is no one right answer. You need to decide what works best for you. If your computer is your principal filing cabinet, make sure you back-up every night.
Unless you keep good records, your practice will not be as profitable as it could. Without good records, you won’t be able to bill your clients accurately on an hourly basis. You should also record your time for projects done on a flat fee basis to help you (i) determine whether the fee was profitable for you, (ii) price projects in the future that call for a flat fee, and (iii) protect yourself if a client complaint leads to a disciplinary hearing. There are many computerized time and billing programs available.
Use one of these programs and enter your time whenever you finish working on a matter for one client and before you begin working on something for another client. If this is too disruptive, then write your time in a diary and enter it into the computer before you leave for the day or before you
begin each morning. If you start this procedure at the beginning, it will become a habit and part of your routine. Recording your time is the single biggest step you can take to increase the likelihood of having a profitable practice and not running afoul of ethical proscriptions.
One of the most difficult tasks facing an entrepreneurial lawyer is deciding what rate to charge. A simple method is to determine your overhead expenses, add the salary or profit you wish to make and divide by the number of hours you are willing to work. This will create an hourly billing rate. You must then compare this rate with the competition. If it is too high, you may lose clients. If it is too low, you are cheating yourself. Just because your rate is higher than the competition doesn’t automatically mean it should be reduced. You may have an expertise or skill that the competition doesn’t have that would justify the higher rate. It is possible that you are more proficient and will take less time so that the client’s total bill will be less even though your hourly rate is higher. Many practitioners have found that as long as you are providing a quality product within the client’s expected time frame, your hourly rate should not be an issue as long as the client knows ahead of time what your rate is and the complexity of the project you will be handling.
Now that you’ve recorded your time, you have something to bill. Establish a policy up front of when and how you will bill. There is no magic to the last day of the month. You can bill midmonth if you prefer and it may help your cash flow since your bills are probably due within a few days of the end of the month. Make sure clients know how often to expect a bill and what your policy is if a bill remains unpaid after 30 days. This information should be set forth in your retainer letter. Decide how you will bill for flat fee projects. Will it all be billed at the end of the project? Are there stages in the project when you could bill for part of the services already provided, for example, when the first draft of the agreement or will is delivered?
Keep in mind that billing your time is not enough; the key is getting your bills paid. If your client is told your billing and payment policies up front and you keep the client informed as the work is being done, it will be much easier to pick up the phone and ask that your bill be paid. For those in practice with other attorneys or who have staff, initially have your staff or a principal of the firm who did not work on the matter call the client rather than you (think of it as a “good cop-bad cop scenario”). Thereafter, you may have to make the call yourself if the client remains unresponsive.
For some reason, most lawyers hate to ask for payment for their services, but it is a fact of life. Think about how you will feel if you have to do this. What will stop you from making the call? Since you must make the call or donate your time, write a list of reasons about why you should make the call and practice making these calls with a friend or your spouse, who has a vested interest in you getting paid.
Disbursements occur in any practice and you must decide how you intend to handle them. Will you require the client to give you a retainer to draw against as disbursements are made? What will you charge for? Many firms charge for photocopying, faxing, messenger service, overnight mail, and postage. Depending on what you intend to charge for you must have a method of recording the expense. All expenses must be documented and included in the billing files so you can support your charges. If you are going to charge for photocopying, you should buy a machine to attach to your copier that keeps track of the client’s identity and the number of pages copied. Every time you pay a disbursement for a client, you are using capital for the benefit of the client. Uncollected disbursements can result in economic hardship to you and your firm. Any disbursements not paid by the client are generally your responsibility and vendors will be looking to you for payments, unless other arrangements have been made.
What is your policy on retainers for new clients and for repeat clients? Beware that under New York law there are no nonrefundable retainers. You must earn all the fees you keep.
If you handle funds for clients, you will need to establish a separate account for those funds. You must not commingle client funds with your personal funds (or with fees you have earned). You can get information about trust accounting for clients from the New York Interest on Lawyer Accounts Fund (800-222-IOLA; 646-865-1541; www.iola.org). More information is available here. In addition, each Appellate Department in New York has rules for handling client funds.
This is an area that creates many disciplinary issues for small law firm practitioners. The problems usually arise from either a lack of knowledge or sloppy bookkeeping instead of an intent to defraud. Nonetheless, if the money isn’t handled appropriately, you could be facing discipline.
If you are going to have an employee, now is the time to create your policy manual -- when you have time and not when you are overwhelmed with client work. The Association’s library has form books that you can adapt for your own use. This is probably the simplest way to create a meaningful policy manual for your practice. However, if you have access to existing law firm policy manuals, you can adapt one of them to your situation. In New York City, firms of at least five employees must have anti-discrimination and sexual harassment policies.
A substantial number of complaints to disciplinary committees each year involve a claim that the lawyer was not responsive. Stay in communication with your clients and return telephone calls promptly. If a client seeks contact too frequently, develop a tactful way of reducing the frequency, such as by promising to call “next week” and making sure you do call.
Every lawyer has them and you should too. Create them now when the pressure of servicing clients isn’t on you. You need a standard retainer letter for each type of fee you will charge (for example, hourly rate, flat rate, or contingent fee). The letter should clearly set forth the retainer you are charging and obligations of the client, including: providing you with information when requested, paying your bill and paying for disbursements made for the client. The letter should state billing procedures. Your payment policy should also be explained in the letter, including what happens if they don’t pay in 30 days (or whatever timeframe you pick). Your policy on disbursements must also be addressed. You should also include the requisite information about fee dispute resolution. Part 137 of the Rules of the Chief Administrator established a statewide Attorney-Client Fee Dispute Resolution Program. Consider Part 137 to be required reading. It applies where representation commenced on or after January 1, 2002, to attorneys who undertake to represent a client in most civil matters. Part 137 provides that in the event of a fee dispute between an attorney and client, the client may seek to resolve the dispute by arbitration. The attorney's participation is mandatory at the client's election. Arbitration awards become final and binding by operation of law if neither party seeks a trial de novo within 30 days.
In addition to retainer letters you may want to consider a form letter to accompany bills, including a form for a status report of the matter for which you are submitting the invoice, and a thank you letter for acknowledging receipt of payment. People like to be recognized for following the rules and clients who pay in a timely fashion should be encouraged to keep up the practice. On the other hand, a payment reminder letter is also necessary and appropriate to send when payment hasn’t been received in 30 days.
Books have been written on this topic but here are a few thoughts to get you started. In Item 2, you were asked to identify what service or help you wanted to offer and what types of people would use those service. You were also asked to identify where you would find those people. If you haven’t done that yet, now is the time to do it. You should also start to create your database, categorizing people as potential clients or potential referral sources or perhaps as both. Everyone you know fits at least one of these categories. In addition, you may find other categories helpful -- topics of interest, local, state, or national and whatever else you can think of that is meaningful to you. Using different categories will help you sort your list of contacts in different ways. If you categorize your names initially and when you add people to the list, it will be easy to produce a set of labels for the right group.
So, get out your Holiday Cards list, the PTA list, and any other list available to you. If you can obtain e-mail addresses, include them. E-mailing is the easiest way to reach a large number of people inexpensively.
Once you have identified the type of people that you want to reach and where you can find them, you have to go to them -- literally and figuratively. If you know where these people gather, figure out a way to give a presentation to them. Every type of organization is usually looking for speakers for monthly meetings. If you can’t give a formal presentation, then mingle with them. When asked what you do, don’t just say, “I’m a lawyer.” Rather you should say, “I help people _________” and fill in the blank with your focus for this group, with family estate planning, real estate transactions, etc. Everyone is a potential client or lead. The school janitor knows as many people who might use your services as the school board president. The little league coach and the volunteer fire fighters are people with extensive contacts. Letting your friends in other law firms know what you are doing is also an excellent referral strategy. There may be a client who is too small for the big firm, or a colleague may think of you when faced with a conflict in representation.
Writing articles is another way to get your name in front of people - initially, when you write the article and a second time when you send it to your clients. Clients like to know that their attorney is so well regarded that they have been selected by a publication, no matter how small the circulation. Writing for the public instead of other lawyers is usually a better approach if your time is limited.
As you begin your practice, make sure you send an announcement to everyone on your mailing list. Having an open house at your office is another way to get people to know you. You can have one large gathering or many smaller ones. Ask each person you invite to bring a friend you don’t know. There is no need to make a presentation (and we’d recommend against it unless the invitation makes it clear that a talk will be given), just be a good host /hostess, circulate, and meet your guests. Have them sign a guest book and send everyone a letter afterwards thanking them for coming and offering to help them in the future if they need your services. Include with the letter a short biography with your background, awards and accomplishments. This is no time to be shy.
If you have done all of the above, you are ready to launch your practice. Working efficiently, keeping your clients informed, and producing a quality product is the best way to spread a reputation that can’t be bought.
You will have an organized office, with policies in place. Your clients will know what to expect and if they are happy with your relationship, they will send other clients to you, particularly if you remember to ask them to.
Good luck. We hope you will stop by the Small Law Firm Center and take advantage of the many resources we offer you not only as you are getting started but also as you grow and succeed .