Managing your Law Practice - Simpson


Course Title

Managing your Law Practice



First Assignment




January 15, 2014 

Introduction, explanation of goals, what is expected of students, preliminary exercise. 

Reading: Steele, Chapter 1:  Sections 1.01 & 1.02. 


  1. Introduction to the course. 
  2. Expectations: attendance, preparation, and participation.  
  3. Keep a notebook. 
  4. Format. 
  5. Readings. 
  6. Graded exercises  
    1. Budget spreadsheet 
    2. Partnership agreement 
    3. Business plan 
  7. Discussion  
  8. In-class exercise: what level of compensation should the new lawyer expect? 

[See attachment] 

    1. Top line revenue 
    2. Operating expenses 
    3. Collection time 
    4. Net income 
  1. Is the practice of law a business or a profession? 


First Year Lawyer Compensation Exercise 

January 15, 2014 

Be Prepared to Discuss in Class:  

  1. How much compensation do you want to make in your first year of practice as a solo? 
  2. Let’s say you are pretty frugal and you can get by on $3,000/month ($36,000 per year) which will cover your basic living expenses (rent, food, health insurance, car, and school loan payments). 
  3. But you’d like to have a bit left over for entertainment & emergencies, so let’s say you would like to make $40,000. 
  4. What would your new law practice have to look like in order for you to bring home $40,000 in your first year? 
    1. How much money would you need to get started? 
    2. How much revenue would you need to produce? 
  5. Assumptions: 
    1. You will open the doors of your new practice on January 1. 
    2. You find inexpensive office space: 400 sq. ft. (one small office and a small reception/waiting area) at $10/sq. ft. per year “full service” (which means utilities are included). Your annual rent therefore will be $4000, or $333/month. 
    3. Your other business expenses are: 
      1. Computer/printer (you could purchase them for $2,000) – but you decide to rent at $100/month. 
      2. Telephone/internet $150/month. 
      3. Bookkeeping & practice management software $100/month. 
      4. Furniture rental & office supplies $50/month. 
      5. Professional liability insurance $100/month. 
      6. Library and legal research expense $250/month. 
      7. Advertising $100/month. 
    4. Total Monthly Business Expenses = $1183 – say $1200/month. 
    5. Warningthese are not reliable estimates!  You will need to confirm the actual amounts for your first-year budget assignment later in this class! 
  6. But for purposes of this discussion, let’s assume that to cover your living expenses ($3000/month) and business expenses ($1200/month) in total you will need to bring in $4200/month or $50,400 per year.   Let’s round this down to $50,000. 
  7. Remember that your expenses will start on January 1 and it will take some time to collect that first dollar of fees from your clients, so you will need some start-up money (“working capital”) and you will need to have this available starting on January 1.  We’ll figure out how much you will need in a moment. 
  8. Let’s assume all your clients agree to pay by the hour. 
    1. You decide to charge $100 per hour. 
    2. You have clients lined up waiting to hire you the day you open your doors! 
    3. So you will need to bill and collect 500 hours the first year to generate $50,000 (500 x $100 = $50,000). 
    4. That means you only have to bill and collect 42 hours each month, or about ten hours a week! That sounds pretty good, doesn’t it? 
  9. But don’t forget: 
    1. You will be sending your bills out at the end of each month. 
    2. So the work that you do in January will not get billed until early February. 
    3. And it is common for clients to pay their bills about 45 days after receiving the bill. 
    4. So you shouldn’t count on receiving any revenue until mid-to-late March. 
    5. This means you will need some working capital to cover your expenses during the 2 ½ months until your revenue starts to come in.  Better have a little extra just in case the revenue comes in slower than you expect, say enough to cover 4 months of expenses. Four months at $4200/month is $16,800.  But you have to pay a damage deposit of one month’s rent in advance for your office space and you want to be conservative so let’s figure on $20,000 for working capital.  Fortunately, you are able to borrow that from your best buddy.  
    6. Unfortunately, but quite predictably, a certain percentage of your clients won’t pay their bills.  Let’s say 9% or 10% of your bills become bad debts that will never be collected. 
    7. So let’s say you will actually have to bill $55,000 in order to collect $50,000. 
    8. But since you won’t be collecting anything during the first 2 ½ months, in order to collect $50,000 in your first year you will need to receive all of that revenue in the remaining 9 ½ months.  
    9. This means you will have to bill $55,000 in only 9 ½ months or $5790/month. 
    10. So you will need to bill about 58 hours each month, not 42 hours.  That is still not a very heavy workload! 
    11. Maybe you should plan to work a little more so you can pay your buddy back for the $20,000 working capital loan!   


What do you like about this plan? 

What do you find unappealing? 

What do you think is unrealistic?  

Can you live comfortably on $3000 per month? 

How likely is it that you will have clients lined up to hire you on the first day? 

How will you go about attracting clients? 

How likely is it that clients will pay a brand new lawyer like you $100 per hour?