This week in Things I Wish I Knew, solo attorney Joleena Louis shares how inconsistent income has affected her life, and how she has made peace with this reality of solo law practice.
One of the most difficult aspects of solo law practice that I needed to adjust to is the monthly fluctuation in income. When I was working for a firm, I knew exactly how much my paycheck would be each week which made it easier to make financial commitments.
When you start a solo practice with few (or no) clients like I did, intellectually, you understand that your income will be unpredictable, but in real life, I do not think I fully appreciated the effect it would have on my emotional well-being.
Lesson learned after one good month, and then one bad one.
I remember the first really good month I experienced. I caught up on some bills and had even made a few purchases that I had been putting aside.
However, the next month I did not get any new cases and to add insult to injury, a couple of unexpected expenses came up.
Despite my best efforts to remain confident, I guess the slowdown in my practice and the pressure from mounting expenses had really affected me. Enough so that my husband picked up on it. I remember him asking me if I was doing okay, and whether I had regretted my decision to go solo.
I did not regret my decision to go solo, and while my financial situation was stressful at the time, I truly believed that the next month would be better and it definitely was better.
Income irregularity never goes away when you’re self-employed, I made peace with it.
What I have learned from my more seasoned officemates in my shared law office suite is having the privilege of being self-employed also comes the challenge of managing these peaks and valleys in income. According to my colleagues, these never really go away.
I encountered some great advice: if you are going to remain a self-employed lawyer, this better be something you make peace with sooner than later. Otherwise, it will drive you (and those around you) crazy; I did just that.
More consistent marketing helped.
In many ways, this forced me to make some big adjustments to the way I was practicing and one of the biggest causes of income fluctuations in my practice was the inconsistency of my marketing.
When I started my firm, I did not take into consideration just how long it takes for marketing efforts to yield results. I was not consistent with this part of my business, which resulted in busy months followed by several slow months.
For me, marketing means meeting people, developing relationships and getting referrals. 99% of my cases come from referrals. Since then, I have learned that once I make a new contact it can take at least three months to get a referral, meaning I will have work in three months.
This is not adequate when you have bills to pay immediately.
In addition to marketing, my office at Law Firm Suites has also been helpful. I am able to network with other attorneys as I go about my day; even when I’m too busy to leave the office, other attorneys are always there, which has resulted in regular referrals.
Then I put myself on a budget.
I had to take a hard look at the way I manage my finances. I do not always know what the next month will bring, so I put myself on a budget.
This is what it looks like:
1. I created a budget plan.
The easiest way for me to keep up with my expenses was to make a list of things that I HAD to pay no matter what changed in my finances.
Then I make additional lists. One relates to things that I need or want but are not a necessity in order of importance and the other is for business and personal.
During slow months I know exactly what I need to cover my basic expenses and when good months occur, I have a list of prioritized expenses that I can pay for based on order of importance.
I am lucky enough to have my husband’s income cover most of our living expenses, but I have still had to cut some of the extras to ensure I stay within budget during the slow months.
2. I keep my money in separate bank accounts.
Separate bank accounts help me to stay organized. I have a total of five separate accounts: for business I have my IOLA, an operating account and a savings account for taxes, a personal savings account, and a checking account.
At any given time I have the most money in my operating account. I have really had to train myself to only use my personal account for personal expenses and to only transfer my monthly budgeted expenses.
I try to keep as much as possible in my operating account for emergencies because a solo attorney may have to deal with various unplanned events that can take a toll on one’s finances.
Keeping it consistent when revenue is not.
My best advice for budgeting with an inconsistent income is to cut your expenses as much as possible, know what your minimum expenses are, prioritize the extras and make sure you put some away for taxes and a rainy day.
Do not spend it all at once because there WILL be slow months and poor financial planning will come back to bite you in these times. It is better to be safe than sorry.
How does a solo grow a firm?
Business has been good enough to start to think about plans for the future. Recently I have been thinking about how I might grow my practice given these income fluctuations and honestly, it is something I worry about. How will I make the transition from solo attorney to taking on the fixed expense of salaries and extra office space for staff in a world of inconsistent income?
Do you have any thoughts? Would love to know.
Inconsistent marketing is just one of the 7 deadly mistakes that prevent law practice success.
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Joleena Louis is a matrimonial and family law attorney at Joleena Louis Law, a ﬁrm she founded after leaving a boutique matrimonial ﬁrm in Brooklyn. Joleena is a client in Law Firm Suites’ start-up program in Downtown, New York. Her weekly blog series Things I Wish I Knew… explores her thought process and experiences in her transition from small law ﬁrm employee to successful solo practice entrepreneur.