The financial side of becoming self-employed is,naturally, one of the main concerns and is a significant factor to consider whether you're a lawyer or doing any other kind of business instead of taking salaried employment. This is particularly so for example if you have a young family, a mortgage etc..
Cashflow when starting off is the obvious concern. There are some areas of law where the work is paid for relatively quickly, for example if you are a litigator being paid on a fee paying basis, but even this will take a while. There are other areas of law, for example where fees are earned on a "no win no fee" basis where a lawyer may not get paid for several months, even years.
To get an idea of how long it will take to start getting money into your bank account, take a few files and see how long it takes from the time you get instructions from a client to when you first submit the invoice to when you get paid - factor this into your business plan.
Disbursements also have to be factored into the equation. Who is going to pay? If it is a personal injury case conducted on a "no win no fee" basis, some firms may lend the money for the disbursement, but interest may be charged and if the case is lost, the disbursement will have to be paid for.
As and when the money does start to come in, remember that tax will have to be paid and money will have to be set aside to pay for this. VAT will be payable quarterly and a good quarter when the VAT generated will be high, may be followed by a poorer quarter but the VAT for the good quarter will still have to be paid.
Other expenses may include a website, business cards, stationery, insurance, dictation, networking meetings.
You can take all of the above when generating your business plan which will help you to assess your cashflow position and when you can expect (or hope) to be in profit.
Coming up next ... Indemnity Insurance
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