Opening a New Law Firm

The financial demands of starting a law practice vary. Some practices are able to operate fully electronically and mainly incur expenses related to technology (equipment and applications). Other practices will need a physical space and have costs for obtaining and furnishing that space, as well as technology expenses. As you consider budgets and forecasts it can be useful to think of initial expenses in the following categories.

Capital Expenditures

Capital expenditures are items that are not consumed immediately, but are long-term investments. 

Capital expenditures include things like: 

• furniture, fixtures and equipment (computer, printer, copier, etc.); 
• tenant improvements; and
• software (if purchased and not paid for on a subscription basis).

One-time start-up and other "up-front" expenses

Start-up and up-front expenses are the costs of getting your practice started. Some may only be necessary once, while others may recur at intervals as your firm grows or updates its materials. 

These include costs for: 

• website development;
• incorporation; 
• bank account setup fees; 
• professional services (legal, accounting, consultation, etc.); 
• security deposits and down payments; 
• moving costs; and 
• internet and telephone setup.  

Operating Expenses

Operating expenses are on-going expenses that you will begin to incur from day one and expect to continue regularly incurring throughout your practice. These expenses must be carefully budgeted in the early months of your new practice because it may be some time before you begin to generate enough cash flow to cover them.

Operating expenses include things like: 

• office space costs (rent and utilities);
• file storage costs (cloud or physical);
• phone, email and website hosting costs; 
• subscription fees for applications, software and legal research resources (including Law Society approved accounting software);
• insurance premiums (for premises, health benefits, excess coverage, others);
• marketing expenses (such as targeted advertisements);
• continuing professional development seminars;
• float for disbursements;
• transportation; and
• employee salaries.

Other Considerations for Start-Up Expenses

You must pay your Law Society fees and Alberta Lawyer Indemnity Association levy. You can find information on the indemnity levy here. You may want to consider part-time status if you anticipate a low volume of work as you start out. You can find more information on status options here.

You must be able to properly protect and store client documents and to pay for disbursements up front even if you are not able to recoup the costs from the client for some time. Budgeting for quality continuing professional development programming and access to legal research materials that are essential for your practice helps set you up for continued competency.

It may be some time before your law practice is cash flow positive. This means you may need funds to cover several months of overhead for the practice. It is also prudent to have a plan to cover your personal expenses for several months. Your accountant and personal financial advisors can help you estimate when your practice will be cash flow positive and determine an appropriate amount to hold in reserve to cover personal expenses until then.