The future for small practitioners

This morning I held a breakfast meeting for small firms of solicitors to discuss the future under the Legal Services Act 2007, when the rules allowing Alternative Business Structures come into effect in 2011. We had an interesting discussion, and I may post another blog about some of what we discussed, but here I just want to mention the business model of running as a consultant rather than a law firm. This is what is happening in society generally, and is something too few solicitors consider when embarking on life outside large law firms.

It seems to be a clever way of operating as a solo nowadays to set up as a consultant rather than as a sole practice. There is a glut of lawyers, and the danger in setting up a solo practice is that you may find yourself trapped in a situation where you can't close down the firm (unless you're willing to pay 6 times your annual Professional Indemnity insurance by way of run off cover), and yet have to continue unless someone either buys the practice from you, or is willing to take over your liabilities.

Many solo firms lack the business and marketing skills required to create a truly successful business that someone will buy off them. The problem is that they set up their firms for the wrong reasons - redundancy, or for lifestyle reasons, and then find it doesn't provide the income they had hoped for.

If you don't set up your own law firm but instead offer your services on a case by case basis to other law firms (usually the larger ones) at far lower hourly rates than you would need to charge if you had your own law firm, you can still work from home, and get to use your expertise, but you stand to make a lot more money. You make more than you were making as a salaried employee, and much more than many solos make who set up their own firms.

You probably need to 'attach yourself' nominally to one of your client firms, who will put you down on their practising certificate renewal application form, but otherwise you are free to work for a number of different firms, and each assignment you undertake will be covered under the insurance of the client firm.

If you find a prospective client who wants your skills, but perfers to have you contract through a big brand law firm then you can refer the work to one of your bigger law firm clients, (collect a referral fee for this) and do the work at your normal rate. Similarly, if the client wants to pay lower fees you can refer the matter to a smaller client firm, again collect a referral fee, and do the work charging your normal rate. The client gets the same expert either way but gets to choose whether to use a large branded law firm or a smaller, cheaper one. You have none of the headaches about professional indemnity insurance. Your hourly rate is low enough to be affordable by either large law firms or smaller ones.

The wrong choice of business model underlies many of the problems solos face. Increasingly as it becomes more and more expensive to operate as a solicitor because of the regulatory overheads being piled up on law firms, why would anyone starting out want to burden themselves with a law firm? If you are a patent attorney, then it's easy enough for you to continue to practice. But for solicitors who don't want to or have nothing to offer if they drop their solicitor title, the solution is to set up as a consultant.

The time for running a lifeystyle law practice is coming to an end. Unless you've got a unique business proposition to offer clients don't set up your own law firm. The promise of lower fees and a more personal service, which you may or may not be able to deliver on, is increasingly not enough of a differentiating factor to win business for a solo practice.