The practice start-up check list – part II

In part I of this article we discussed the importance of defining the business and asked some simple questions:

• What do I want to achieve?

• What is the concept?

• How does my idea compare to the market and how will I win clients?

• How will I operate the business?

• How will I market the practice?

However, also remember that it is going to be necessary to convince the Solicitors Regulation Authority of your viability. Just as importantly, it is a tool for you to reality check your objectives.

Will your practice be financially viable?

Consider how realistic your forecasts are. The strategy is there; forecasts show how the firm will work financially. Sales, direct costs and overheads all need to be considered and forecast on a month by month basis looking over two to three years at least. As you prepare your forecast, answer the following:

• are your estimates for income realistic?

• is there the potential client base to achieve this?

• will there actually be the fee earning hours in the day to deliver what you are predicting?

• what can be done to minimise my costs? Is each cost absolutely necessary?

• critically: if your predictions are worse by 10 per cent or 15 per cent (or more) is the business still sustainable?

Do you have enough cash? While many talk of profit and loss, this means nothing if there is no money in the bank to pay the bills. Think long and hard about how you will make the business financially sound. Do you know:

• what cash is needed to set up the business and to allow it to survive the initial months;

• what cash do you need to take out to live;

• what contingency you should allow;

• how you will manage cash flow;

- how regularly will you invoice clients;

- how will you ensure your invoices get paid;

- how regularly will suppliers be paid; and

• where will funds for tax and VAT (if registered) be put aside?

If you don't get the cash right then all the other grand plans will count for nothing.

Achieving compliance and authorisation

Authorisation by the SRA is obviously a critical hurdle. The level of work required to achieve this will vary depending on the entity to be authorised. In answering their questions, remember that the SRA have a duty to ensure that clients are protected. They need to be confident that you can deliver. So whatever the structure of the firm there are still some common points to be addressed.

Demonstrating viability

If you have addressed the questions covered in both part I and part II of these articles, you should be in a position to prove that you have a viable plan for your firm's long term existence. Don't forget, you will also need to have a proposal in place for professional indemnity insurance. This means that the insurers will also want to be confident that you are ready to manage things properly.

Meeting regulatory duties

Prepare your compliance plans before applying. You can use these within the answers to the SRA to show that you are taking your duties seriously. When we have worked with clients on their authorisation the fact that we have their compliance plans in place helps significantly.

Make sure that you have all of the policies that you need (such as anti-money laundering, equality and diversity, financial management and so on). Do not tie yourself up in unnecessary bureaucracy. Compliance is critical but your policies and processes should be appropriate to the size and nature of your practice.

Possible risks

Risk management is a critical area of concern for the SRA. Make sure that you have taken the time to identify potential risks and taken reasonable steps to mitigate them. Risks include:

• client risks (including how you will manage high risk clients);

• operational risks (including disaster recovery); and

• strategic risks (part of ensuring long term viability).

Can I get help?

Yes - play to your strengths and utilise the expertise of others. Where possible and practical, use support and help that's available to you. This can include your personal network of friends and family and your professional networks.

While costs should always be kept to a minimum it's still worth looking at what professional help you can get. With the appropriate support you can reduce delays in authorisation, reduce set up costs and improve your chances of success.

Most importantly it can free you up to do what this is all about: providing outstanding legal services to your clients.

Alex von der Heyde is Managing Director of Esterase

www.esterase.co.uk

alex.vdh@esterase.co.uk