Step 1: Confirm your license and your state's rules
You must be admitted to practice in your state and follow its bar rules on advertising, trust accounts and firm names.
Start with your state bar's requirements. Many bars have rules on firm names, who can own a law firm, advertising and fee agreements. Some states offer practice management advisors who can answer questions for new solo practitioners. Do not assume a rule from another state applies.
Step 2: Choose a structure
Many firms form a professional LLC or professional corporation, subject to state rules, to separate business and personal liability.
Requirements for professional entities vary, and they do not shield you from your own malpractice. Talk to an attorney or accountant about taxes and liability. Our overview of business structures explains the basics. Keep a separate business bank account from day one.
Step 3: Set up trust accounting and insurance
Client money must go into a trust account, never be mixed with firm funds. Malpractice insurance protects against claims.
Trust accounting (often called IOLTA in many states) has strict rules about deposits, withdrawals and recordkeeping. Mistakes can lead to discipline. Use software designed for it and reconcile monthly. Get quotes for professional liability coverage, plus general liability and cyber coverage for client data. See lawyer accounting for more.
Step 4: Budget your startup costs
Plan for licensing and dues, insurance, technology, office space, marketing and several months of living expenses.
- Bar dues, licensing and continuing education.
- Malpractice and other insurance.
- Practice management, document and billing software.
- Office, shared space or a virtual setup.
- Website, branding and marketing.
- Research tools and legal forms.
Our article on the costs of starting a law firm goes into more detail. Then add a personal runway, since the first clients may take months to pay.
Step 5: Plan for slow cash
Hourly billing, contingency fees and court schedules mean money often arrives well after work is done.
Contingency cases may take years to pay. Hourly clients may pay in 30 to 60 days or later. Use retainers where permitted, bill promptly and follow up consistently. Build a cash forecast covering rent, staff and software through your first year. Read why create a cash flow projection.
Common early mistakes
Most problems come from weak trust accounting, underpricing and no cash buffer.
New firms sometimes mix client and operating funds, skip written fee agreements or underquote work because they fear losing clients. Others sign long office leases before they have steady cases. Use written engagement letters, track time even on flat-fee matters to learn true profitability, and keep several months of expenses in reserve. Join your local bar association and find a mentor, since advice from someone who has done it saves expensive mistakes.
Pricing and billing choices
How you charge shapes your cash flow as much as how much you charge.
Hourly billing is flexible but invites collection delays. Flat fees give clients certainty and you faster cash, if scoped well. Contingency fees can be rewarding but tie up time and case costs for long periods. Many new firms mix models. Whatever you choose, follow your bar's rules, use written fee agreements and invoice on a regular schedule rather than waiting until a matter closes.
Step 6: Get clients and funding in place
Referrals, a clear niche and a strong online presence bring clients. Funding can cover gaps once the firm has revenue.
Pick a practice area, build relationships with other lawyers and professionals, and make your site and local listings easy to find. Follow your bar's advertising rules.
Brand-new firms often start on savings, since ROI Funder requires 6+ months in business. Once a firm has $20,000+ in monthly revenue and a 500+ FICO, working capital or a line of credit may help with case costs, hiring or an expansion. Learn more on our law firm funding page.
Frequently asked questions
How much does it cost to start a law firm?
It varies widely by state, office choice and technology. Build a line-by-line budget and add several months of personal runway.
Do I need a trust account?
If you hold client money, yes. State bar rules strictly govern how to handle it.
Can a new law firm get funding?
ROI Funder requires 6+ months in business and $20,000+ monthly revenue, so brand-new firms typically start with other sources.
Should I form an LLC?
Many firms use a professional LLC or corporation where state rules allow. Ask an attorney and accountant.