Starting Your Own Practice: The Money Questions to Answer First

Nobody teaches you the money part in law school. You learn the rule against perpetuities, you learn how to shepardize a case, and then you graduate and someone hands you the keys to a business without ever mentioning the word "cash flow." I know lawyers who could argue a Charter question in front of an appellate bench and could not tell you their monthly overhead within a thousand dollars. That gap is where new practices quietly go under.

Starting your own shop can be one of the best decisions you ever make. It can also be one of the loneliest and most stressful, and the difference usually comes down to whether you did the boring financial homework before you opened the door. So let us do the homework. Not the inspirational version, the actual numbers version.

How long can you go with no income?

This is the first question, and most people skip straight past it because the answer is uncomfortable.

When you start a practice, the money does not arrive when the work does. It arrives when the client pays, which is often weeks or months after you have done the work, and only after you have billed for it, which many new solos put off because billing feels awkward. Between opening day and your first meaningful deposit, there is a gap. Your job before you start is to know exactly how wide that gap is and to have enough saved to walk across it without panicking.

Add up what it costs you to simply exist for a month: rent, groceries, your student line of credit payment, insurance, the phone bill. Then add what it costs the practice to exist: your professional liability insurance, your law society fees, software, and whatever office arrangement you choose. Multiply the total by the number of months you can realistically expect before steady revenue. For most solos that runway is longer than they hope, often six months or more.

A senior lawyer once told me the first year of solo practice is free. Not free as in easy. Free as in you should assume you will not pay yourself much of anything, and plan your life around that number.

If that sentence made your stomach drop, good. Better to feel it now than in month four.

Know your real overhead, not your imagined overhead

New lawyers dramatically underestimate overhead because they only count the obvious things. Let me walk through the categories that actually matter, because the surprises live in the ones you forget.

• Professional liability insurance. In most provinces this is mandatory the moment you practise, and it is not trivial. Build it into your budget from day one, not as an afterthought.
• Law society fees and dues. Your annual membership, plus any levies your province charges. These do not go away because you are new.
• Technology. Practice management software, document automation, a secure email setup, cloud storage, a decent laptop, cybersecurity basics. This is not the place to cheap out.
• Space. Whether you rent an office, join a shared suite, or work from home, there is a cost, even if that cost is just a good chair and a locking filing cabinet for confidential files.
• Marketing and website. People cannot hire a lawyer they cannot find.
• Bookkeeping and accounting. Pay a professional. I will die on this hill.

Write every one of these down as a monthly figure. The exercise of turning vague dread into a specific spreadsheet is the single most useful thing you can do before launch. Vague dread expands to fill the room. A number you can actually plan against.

Fixed versus variable, and why it matters

Sort your costs into two piles. Fixed costs hit you every month regardless of how much work comes in: insurance, dues, software subscriptions, rent. Variable costs move with your volume: filing fees, expert reports, extra research tools for a specific matter.

The reason this split matters is simple. Your fixed costs are the number you must cover before you have earned a dollar of profit. A lean fixed base is what lets you survive a slow month. Every subscription you add "just in case" raises the floor you have to clear, every month, forever. Keep the floor low while you are finding your footing.

The trust account is not your money

If you take one thing from this article, take this. When a client pays you a retainer up front, that money is not yours. It sits in a pooled trust account, and it becomes yours only as you earn it and move it into your general account with a proper invoice.

Every province takes trust accounting extraordinarily seriously, and the rules are unforgiving because the money belongs to clients, not to you. Mishandling trust funds, even by accident, even by sloppy record keeping rather than any dishonesty, is one of the fastest ways to end up in front of your law society. The bookkeeping has to be exact. Reconciliations have to happen on schedule. The paper trail has to be spotless.

This is precisely why I keep insisting you hire a bookkeeper who understands legal trust accounting specifically, not a general small-business bookkeeper who will treat it like any other account. Your provincial law society publishes detailed rules and guidance on trust accounting, and you should read them before you accept a single retainer. The Federation of Law Societies of Canada can point you to the right regulator for your jurisdiction.

Do not learn trust accounting on the fly with real client money. Learn it first.

Setting fees you can actually live on

Here is where a lot of new solos sabotage themselves. They set their rates by looking at what they think clients will tolerate, working backward from fear, rather than forward from what the practice actually needs to earn.

Start from the other end. Take your total annual costs, add the salary you need to live, and add a cushion for slow periods and taxes. That gives you the revenue your practice has to produce in a year. Now divide by a realistic number of billable hours, and I mean realistic. You will not bill eight hours for every hour you work. A large share of your time goes to running the business: marketing, admin, bookkeeping, answering emails that never turn into paying files. If you understand how the billable hour actually works, you already know the gap between hours worked and hours billed is enormous.

The rate that falls out of that math is your floor. Below it, you are slowly paying to run your own firm. If it feels high, that is usually a sign you have been undervaluing legal work, not a sign the number is wrong.

A few honest notes on fees:

1. Get comfortable talking about money with clients. The awkwardness fades with practice. Silence about fees is what breeds the disputes.
2. Bill promptly and regularly. The longer an invoice waits, the harder it is to collect. Monthly billing is a discipline, not a nicety.
3. Consider fixed fees where they fit. For predictable work, a flat fee can be fairer to the client and better for your cash flow than a running clock.

Taxes, and the money that was never yours

The other trap that catches new solos is treating every dollar that lands in the general account as spendable. It is not. A meaningful slice belongs to the government, and if you spend it before you set it aside, tax season becomes a crisis.

Open a separate savings account and move a fixed percentage of every payment into it the moment it clears. Treat that account as though it does not exist. You will also likely need to register for and collect GST or HST once you cross the threshold, and to make instalment payments through the year rather than one lump sum. None of this is complicated once someone explains it, which is, again, why you pay an accountant. The fee is trivial next to the cost of getting it wrong.

Build the practice around a plan, not a hope

Everything above rolls up into one document: a plain, honest financial plan. Not a fifty-page business plan for a bank, just a clear map of what you spend, what you must earn, and how long your savings will carry you. Revisit it every quarter. Adjust as reality argues with your assumptions, because it will.

The lawyers I have watched build durable practices were rarely the most brilliant advocates in the room. They were the ones who knew their numbers cold, who charged fairly and collected reliably, and who never, ever touched the trust account carelessly. The advocacy is what you trained for. The money is what keeps you in the room long enough to do it.

If you are still weighing solo practice against other routes, it is worth reading how the day-to-day and the economics compare in a small firm versus a large one, and browsing what is actually out there on the current job listings before you commit. There is no wrong path, only the one you walked into without doing the math. You can find more on running the business side of a legal career in our money and business writing.

Do the boring homework first. Your future self, the one who is still practising in five years, will thank you.