In part 5 of our series we discuss Funding Your Practice.
There are significant financial demands to running a successful personal injury practice. These demands are greatly increased when you are in the process of setting up and establishing a new personal injury practice. As stated above, you will have virtually no choice but to offer your services on a contingent fee basis which means you will collect fees some number of months or years after you begin working on a file and you will carry most of the disbursements associated with the file for this period of time as well. At the start of your practice, you can expect a significant delay in the inflow of cash. Conversely, the outflow of cash will begin before you even open your doors for business. Starting in the planning stages of opening your firm, you will begin to incur the typical overhead expenses of a law firm, such as rent, salaries, law society fees, insurance, equipment purchase, etc.
Before setting out on your own or in partnership, you must ensure that you have enough money in the bank or access to adequate credit to ensure that you can continue to pay your overhead costs when cases are pending. You don’t want to find yourself in a situation where your judgment about the value of a case is effected by your need to meet your financial obligations. In my experience, banks will be reluctant to lend to anyone who does not have significant collateral that they can pledge as security for their loan or a long and proven track record of success in their law practice. Banks have difficulty recognizing the value retained in a personal injury law practice by way of work in progress (WIP) and paid disbursements. On complex cases, the paid disbursements can easily run into the hundreds of thousands of dollars. In a large practice, paid disbursements can amount to millions of dollars. Continue reading