Thinking of going out on your own?
Practical advice to get you started in practice
In recent years we have seen, and assisted with, an increasing number of start-up law firms, particularly solicitors, who have made the decision to go solo. Here is our essential guide for consideration when starting your own law firm.
1. Choose the structure of your business
It is essential to choose the right type of legal entity for you and your business, be it sole practitioner, partnership, limited liability partnership (LLP) or limited company. Whilst this decision can boil down to effective tax planning based on your anticipated earnings, there are other factors to consider, such as the perception of your target client base, and succession options.
2. Set up your legal entity
A moot point for sole practitioners and partnerships, but should you want to practise via an LLP or limited company, you will need the entity to be registered before applying to the SRA for authorisation. Remember that LLPs and companies are obliged to file confirmation statements and accounts with Companies House on an annual basis, and you will need to inform Companies House about any changes in management (members/directors), issued share capital for companies, change in accounting reference date, etc.
3. Create a business plan
You should create a comprehensive plan, which, as a minimum, considers the following:
- The services you plan to offer
- Target market
- Your management team – e.g. key advisers as well as you
- Recruitment and training needs
- IT strategies
- Financial forecasts
- Risk management
- Legislative and SRA compliance
- Marketing plan
The plan deserves to be considered in great detail. It will also normally be required by the SRA, your insurance provider(s), and the bank in setting up your new practice.
4. Obtain professional indemnity insurance (PII)
It is a regulatory requirement for solicitors in private practice to take out and maintain compulsory minimum PII from a participating insurer. PII must be acquired before commencing to practise, and the SRA will ask for your insurance details as part of the authorisation process (see below for more details). The SRA requires that practices assess and purchase a level of PII that is appropriate for the firm and you should therefore consider whether any additional cover is required above the compulsory minimum level. It can be either surprisingly good value or surprisingly expensive for start-up practices (i.e. it is not always consistent), so do shop around. There are providers in the market who specialise in start-up practices, and we know them well, so can introduce you.
5. SRA approval
The SRA authorisation process can be easily completed online these days, and we have seen relatively quick approvals for practices with simple structures. The SRA’s guidance states that they will aim to make a decision on recognised (non-ABS) businesses in 12 to 16 weeks if the application papers and fees are correct, but the process to become licensed as an ABS can be longer. You must receive authorisation before commencing your practice, so forward planning is essential. In practice, we are seeing the SRA turn around straightforward applications in six to eight weeks on average at the moment.
All authorised bodies must have a Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA) approved by the SRA. A separate individual approval application form must be completed for each individual in the firm who will require specific approval; the managers, owners, COLP and COFA. However, there is now deemed approval in place for sole practitioners and small practices.
6. Set up bank accounts
Consider whether you intend to hold client money (which must be decided as part of the above SRA approval process), and contact the bank in good time to get bank accounts set up before you commence trading. It is definitely worth doing research into which bank will offer you the best deals on interest and charges if you believe you will be holding large sums of client money and/or operating a considerable office account overdraft.
7. Choose your accounting software
If you are operating a client bank account, it is important to have accounting software which will ensure you comply with the SRA Accounts Rules. Some packages can be very expensive, so it is worth doing research into your firm’s specific needs, particularly relevant to size. The ILFM publish a useful guide here, and we know most of the main providers too.
8. Inform HMRC
Consider whether HMRC needs to be specifically informed about the new business. Notification to HMRC of new companies is automatic on incorporation at Companies House. However, you may want/need to register the business for VAT, set up a PAYE scheme and/or let HMRC know that you have become self-employed.
Our Legal Team are well placed to advise at all stages identified above. We can manage the whole process for you should you wish. Our extensive network within the legal sector means that we can also introduce you to the most appropriate professional indemnity insurers for each circumstance. We will also recommend bookkeepers, banks and lenders, should you seek expert input on this.
Our contact details are below, and we are here to guide you the way, so that you can focus on building your own client relationships quickly.