Celebrating 10 years! 2007-2017

borrowing for first year of solo practice?

With a wife and children and being the only one who works ou youngbuck08/16/18
I made (netted) half of that my first year as a solo. Probab dakotalaw08/16/18
I don't think there's a small business loan of the sort you' onehell08/16/18
I started with an SBA loan back in the day. I don't know if fettywap08/16/18
SBA loan guarantees still exist, but I still don't know how onehell08/16/18
When I did it, I just requested a loan amount to start my bu fettywap08/16/18
How much workers comp experience do you have? Do you have do guyingorillasuit08/16/18
I don't want to discourage you OP but 90K net your first yea isthisit08/16/18
It took me five years to get to $75k practicing criminal law adamb08/17/18
youngbuck (Aug 16, 2018 - 1:50 pm)

With a wife and children and being the only one who works outside the home, I've been contemplating solo practice for a while but have always been fearful of how long it would take to stay afloat. I think I would need to earn approx $90k a year for mortgage, taxes, groceries, student loan payments, insurance, etc. I would be looking to do primarily workers' compensation petitioner work, but the problem being you don't get paid in my jurisdiction until the case resolves, so obviously I'd have to supplement with other work to get get paid up-front, but even then, my chances of making $90k or so my first year out?

Forgive my ignorance, but is there any kind of small business loan that would work like that and not require payments for the first year? Any other ideas?

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dakotalaw (Aug 16, 2018 - 1:59 pm)

I made (netted) half of that my first year as a solo. Probably grossed $60,000.

If you can sell you can sell the law, but I think you are going to have a hard time selling a banker on a SB loan with no track record.

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onehell (Aug 16, 2018 - 3:14 pm)

I don't think there's a small business loan of the sort you're looking for. SBA, for example, says you gotta be able to cover operating costs, and the loan payment, AND your draw "from the earnings of the business."

There's also "skin in the game" requirements like $1 of your own cash invested in the business for every $3 of loan, and collateral requirements, but that draw thing is the kicker. It means the profit from the business, not the loan, is the only thing you can take as a draw and thus use for your personal living expenses. In other words, small business loans are for investing in the business, not for covering your living expenses while the business gets off the ground.

Of course, a law firm doesn't really need much of a capital investment. It's not like you need loan funds to renovate a building to turn it into a restaurant the physical property of which can then be used to secure the loan. All you need is generic office space and computer/phone/internet/etc. Indeed, the equity could be a problem too. A law firm doesn't sell a physical product and computers quickly depreciate to no value, so unless it owns real estate a law firm doesn't really have any assets other than your own brain and the goodwill of its clients. It really just isn't the sort of business SBA loans were designed for. There are litigation finance companies but they too are looking to finance the costs of a personal injury lawsuit before it settles; still not intended to cover your living costs.

Loans that can be used for living expenses would be things like credit cards, HELOCs, personal loans, and so forth. But those sorts of loans are not going to just give you long grace periods while the business gets up and running; payments will start immediately.

Foonberg's famous book "how to start a law practice" says you need at least a year's worth of living expenses in the bank before you should even consider going solo, and unless you have a spouse who will continue to work full time I think he's right.

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fettywap (Aug 16, 2018 - 3:45 pm)

I started with an SBA loan back in the day. I don't know if they still do those anymore after the banks failed.

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onehell (Aug 16, 2018 - 4:23 pm)

SBA loan guarantees still exist, but I still don't know how much help it'd be to OP. They're for investing in your business, but with a solo practice law firm there's little to invest in; it's just rented office space and a couple of computers.

I suppose if you needed capital to make a big ad buy, or if your law firm was going to OWN its office space, that could make sense, but I can't see how a bank would loan you money that won't go into the business at all, but which will rather just pay your regular bills. If it's a personal loan then apply for a personal loan, but a small business loan is for business purposes, not household purposes.

https://www.americanbar.org/publications/gp_solo/2011/july_august/financing_law_practice.html

"unless you have a spouse who earns enough to support your family at a minimum acceptable level without your help and is committed to continuing to do so until your practice becomes profitable, we recommend that you have sufficient savings to cover one year of personal living expenses (or at least your expected contribution) before you start your practice."

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fettywap (Aug 16, 2018 - 5:48 pm)

When I did it, I just requested a loan amount to start my business, and then put together a business plan of how much I expected to spend every month and how much I reasonably expected to take in. I think I included personal expenses in my plan. How I spent the money after I received it was up to me. But that was also a very nice bank that's out of business now. You're probably not going to get a Bank of America or Citibank to back a loan like that.

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guyingorillasuit (Aug 16, 2018 - 7:12 pm)

How much workers comp experience do you have? Do you have docs and chiros in your network who will refer you cases? How do you plan to bring in business?

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isthisit (Aug 16, 2018 - 9:33 pm)

I don't want to discourage you OP but 90K net your first year out is improbable for a new solo. Unless you're bringing a book of business from your current firm, you're going to spend most of your first year taking any case you can get and trying to get your name out there.

If your wife can work, if even part-time, than she should. You should start your practice from your home and meet with clients/potential clients at the local courthouse conference rooms, law library, coffee shops etc. Keep your overhead low and your lifestyle even lower. You can probably earn a meager living your first year out. But with time your practice will probably snowball into a nice little shop or maybe it won't. Who knows but it's worth a shot to bet on yourself.

I have a friend who went solo about a year ago and he meets his clients at the local law library. He gets LexisNexis access through it and a community of other solos to bounce ideas off of. He's built himself a nice little referral pool too but it's nowhere near enough for him to consider going brick and mortar. I think he earns an OK living and it's slowly getting there. He's definitely another couple years out though from earning "good" money.

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adamb (Aug 17, 2018 - 8:05 am)

It took me five years to get to $75k practicing criminal law with like $500/m overhead. Very rough. Lean years. But I won big cases and got a great govt job where I moved up very quickly, now being the second senior attorney in my trial bureau. I really saw solo as a strategy for job experience, as solo practice is so feast or famine with no benefits. And it is 24/hr stress. Whereas now I come home, play with my hubby, then play Hollow Knight without a care in my little head (unless I’m on trial).

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