My Shingle

Tax Day: A Reminder of The Ups and Downs of Solo Practice

by Carolyn Elefant on April 15, 2013 · 5 comments

in Marketing & Making Money, MyShingle Solo

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With 2012 taxes now complete, I’ve officially marked the last action of the worst year of my practice in a half-decade. While I won’t discuss everything that went wrong, the problem is pretty obvious: more money out, less money in.  In my case, an office upgrade and more personnel took a bit of a toll on the expense side. But the bigger hit was a decline in revenues. This year, I had fewer retainer cases (where I’m paid a set fee every month – a great hedge against ups and downs), more anticipated cases not coming to fruition along with more matters resolving more quickly than expected (even though I bill flat fees, they are often phased, so if a case doesn’t proceed to a second phase, I don’t earn as much).

While bad years can always happen, the best part of being solo or small is that there’s an opportunity to fix a situation before it heads too far south. On the other hand, that also means that we alone are accountable for our failures – and thus, I blame my bad year on networking and marketing — which I eventually stepped up late in the year after finally realizing how things were heading. One thing I won’t do, however,excuse my performance in light of the stagnant economy or sequestration; factors which do take a toll on many DC-based practices. It’s my bad for not coming up with a strategy to capitalize on or at least mitigate the effects of the downturn. So long as at least some of my competitors are making money (the others are calling me and asking for work), there’s no reason why I shouldn’t be in that camp either.

Still, I’m not going to be too hard on myself. Because ups and downs are part of what happens when you trade a steady paycheck for your own practice. You can plan and market and work as hard as you can – but at the end of the day, there’s always a risk that things won’t go as planned or that you’ll have to take two steps backwards before moving forward again.  

Of course, this is the part of solo/small firm practice that no one wants to discuss. We want to believe that after you start a firm, you struggle for a year or two, then take off on a trajectory that knows no bounds. And I’m sure that there are some lawyers who take off, find nirvana and never look back. But for others, the ride to financial stability and sustainability can be rocky – and the only reason that you might not think so is because most lawyers are too embarrassed to own up to a bad year. I have no choice, because if I’m out here promoting solo/small firm practice as an option worth pursuing, then I owe it to readers to share the not just the good, but the ugly as well.

So that’s the truth – downturns happen. And when they do, all can do is take a deep breath, pick yourself up and start over. Because there’s nowhere to go but up.

 

  • Yorick

    It’s interesting that there has been no discussion in response to this post, perhaps because the topic is so unsettling to many solos. There seem to be many individuls who strut and fret on the internet about how well they are doing while 30 years of practice has taught me that very few solos escape the financial valleys and all too often little or no planning for such times has taken place.. Anyway, I commend you for touching a topic that most are afraid or ashamed to acknowledge and wish you a more prosperous year to come.

  • DC Atty

    I left a large law firm and went out on my own the end of 2008. I had a down year in 2011, but 2012 bounced back to my previous average from 2009-10. So I continue to conclude that ours is a cyclical profession and there is only so much we can do about it.

  • Sandy

    If it makes you feel better, I decided to roll my SEP-IRA into a ROTH-IRA this year. Trust me, you really want to consult with your accountant before you pull a move like that. I might have had an average year last year – but I didn’t pay average taxes.

    I too think it is great that you are willing to admit that its not always easy being a solo and that yes, income can vary from year to year. I know mine sure does.

  • Susan Cartier Liebel

    Carolyn, you said, ‘and thus, I blame my bad year on networking and marketing — which I eventually stepped up late in the year after finally realizing how things were heading.” This is the Achilles heel of most solos. While they are doing the actual legal work, they forget that networking/marketing is part of ‘the work’ needed to keep business in the pipeline. I can’t tell you how many solos/small firms get a rush of business and forget that maintaining a practice requires the 80/20 split each week – 80% work and 20% marketing (whatever form the marketing takes). You recognize it and I’m glad you included this in your assessment.

  • myshingle

    I had deluded myself that I could rest on my laurels!

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