ARE YOU LOOKING TO SET UP YOUR OWN LAW FIRM?
Are you looking to start up your own Solicitor Practice in 2024 and doing what you love for yourself ?
It may seem daunting, but we have assisted over 50 new start law firms over the years in achieving affordable Professional Indemnity Insurance to enable them to start their new venture.
Some things to consider:
Do you have enough experience
The SRA advise that you need at least 3 years Post Qualification Experience (PQE) but in reality, Insurers do like to see at least 5 years PQE. But this is not set in stone. For example, if you do have more experience in your field or you have helped run a Law Firm prior to becoming qualified, this could be taken into account.
What Area of Law will the firm operate in
Insurers want to know the area of law on which you will be advising clients. It’s critical to stick to what you are experienced in. Insurers will not really want to see you offering to advise in more than 2 or 3 areas of law. Keep it niche!
Fee Income and Cash Flow
Insurers will want to see that you have thought about your business carefully and that you have considered how much income you will achieve as well as how much it will cost you to run the business. Ideally, they want to see a business plan that covers at least the first 3-year period. Ultimately it is a business and Insurers will want to see that it will be profitable and sustainable.
Demonstrating that you have a good understanding of Risk and how to both identify and manage it is crucial for any prospective insurer. You are asking the insurer to back your judgement so you need to convince them that they can.
For example, you should consider not only whether your Law Firm should have a Case Management System and/or a central diary system but what type of system and whether it is providing you with the right level of support.
Do you have contingency plans and/or a disaster recovery plan? What would happen if you fell ill, had to deal with a major event or even how clients will be dealt with if you are on holiday?
Limit of Indemnity
If you intend to be a Sole Practitioner or a partnership, the minimum SRA requirement is £2 Million of cover. If you decide to set up as a Limited Company or Limited Liability Partnership (LLP) then you are required to have at least £3 Million.
You have a Regulatory obligation to assess what is an appropriate limit of indemnity to purchase and we can help you do that.
Run – Off Cover
The last thing that you want to think about when setting up a new practice is what happens if it all goes wrong. Unfortunately, that is one of the major considerations an insurer will have before offering any cover.
Participating Insurers, i.e. those that have agreed with the SRA to provide their agreed cover, are compelled as part of that cover to provide the firm with insurance for at least 6 years following closure even if the premium isn’t paid. The cost of that cover, typically, is 3 times the cost of the policy in the year preceding the closure. Again, this factor focuses the insurer’s mind on the economical viability of the firm.
What you need to provide to Insurers
Insurers will want to see a detailed Business Plan. Although they do not need to see graphs and charts, they will want to see that you have thoroughly thought the business through. The plan needs to achieve a fine balance between providing sufficient information and providing so much that an underwriter hasn’t time to read and digest properly.
Providing as much information about yourself and your background always helps. Have you written any articles, been on the radio, achieved a good outcome on a big case you have worked on…… everyone loves a story! Let them know why you want to start your new practice, how you will achieve this, and what your plans are for the future.
We can provide a guide to what needs to be in the business plan to assist.
Cash Flow Forecast
You will need to show that your business is viable, we recommend a 3-year cash flow, showing your expenses as well as your estimated monthly fee income. You will more than likely already have thought about this as you would not be considering starting your own practice if it was not profitable.
Insurers will need to see the CVs of all fee earners. These do not have to be too detailed but need to show the experience in the area(s) of law outlined in the Business Plan.
This has touched on only a small number of issues that you need to consider and if you have any questions or you just want to chat things through, please get in touch. We want to help you have the best chance of getting your new venture off the ground.
Written by: Claire Wills