Practice Management

Sure there is the old saying that you have to spend money to make money, but in the area of starting a solo law practice that statement is a canard. It is at least deceptive.

One problem is that law firms are not manufacturing companies. They do not borrow money in order to meet a sales goal, so as to make money. They tend to spend money not on advantages but on disadvantages. Money is spent on things that are neither necessary to produce anything nor make money. The money is spent to buy popularity, such as a new computer, or a bigger, fancier office, or something else of little consequence to the act of actually making a living.

Law firms, and especially small law firms, do not adhere to the "Bean Theory", where financing is understood as a commodity in terms of beans -- something that is bought, sold or traded. You look at the cash spent as a bunch of beans. You trade those beans in such a way that you get more beans than those with which you started. The money spent is limited to that which enhances your income. Nothing much purchased by a solo or small law practice actually enhances income.

So, for example, you just have to buy the best, prettiest, new Apple computer in order to make yourself feel good in the practice of law. The computer costs 2,000 beans. Then you have interest over three years to pay off the debt that costs another 1,000 beans. The Apple computer depreciates in value.  It does not go up.  So, in three years you have spent 3,000 beans and you have a asset worth maybe 200 beans.

Another example might be the urge to rent a nice office in which to work. Now, you already have space at your home or somewhere else. You are virtual in that you have a laptop and a cell phone. But, you convince yourself that having some office space is a good "investment". (Investment is a term we like to use to the spend money on things that do not offer any real return, and to justify what we want to do regardless of any loss). The space costs 1,000 beans a month.  The lease is for one year. For 12,000 beans at the end of the year you have an asset worth 0 beans.  On top of that, the space cost you more beans in terms of utilities, internet hook up, commuting, and in maintaining that image that is important to you -- but not really anybody else.

The point is that small practices rarely have an opportunity to spend money to make money. So, the saying does not work in this regard. Small practices generally spend money to spend money, and that, in the long run, is usually the doom of most practices.

The one difference might be advertising or marketing. But, my point all along is that advertising is expensive. It generally represents spending money with the hope of making money so you can spend money. It often represents a vicious cycle.

Referral-based marketing, on the other hand, requires a constant and deliberative effort, but it does not have to cost that much money. Further, it continues to reap money for the practice long into the future.