It is a common misconception among owners of small law firms that growth is measured by the number of people in the business.
Over the years I have spoken with many partners in small law firms and as soon as the word ‘growth’ is mentioned, they react, usually with alarm and the statement ‘No! I don’t want any more partners!’. However the meaning of growth is misunderstood. True growth of any business is through an increase in profit.
So what are the options?
From a revenue perspective, simply increasing charge rates to improve the bottom line is not as easy as it sounds.
Rates, whether fixed fee or time based, are controlled by powerful market forces. For most small practices, the affordability of their service constrains pricing rather than the competition. Most people find it incredibly difficult to pay legal fees, therefore your only real options are to cut costs or improve efficiency.
Staff costs are the biggest expense and really the only variable where changes can have impact. Your options are to either reduce staff or get existing staff to do more. The only way to achieve either of these objectives is to improve your business’s efficiency by using great technology. The rise of self check-ins/ check outs at airports and grocery stores provides clear signposts for the future. People are expensive! To avoid unnecessary staff costs you must automate.
Technology is cheap. Intense competition has made technology cheaper than ever and it is no longer an unnecessary expense but a valuable asset to any business as the primary way to increase efficiency and in turn, profit.
Reducing staff is of course a contentious topic. In some areas, jobs such as legal accounting and secretarial work are no longer fashionable, many small law firms find it difficult to find suitable support staff. Junior lawyers are also hard to find, particularly in non-metropolitan areas.
This therefore presents you with only a few options:
1. Give your staff the tools they need to do more work faster;
2. Delegate more work to existing staff so that you can do the high value work;
3. Reduce legal accounting costs by re-engineering the way you do your matter accounting so you can use part-time bookkeepers.
If you organize your firm by following this 9 Point Plan, I know from having seen success in many firms, that you will see your profits grow without having to employ extra staff.
1. Organize your data into a single database
There is a threshold that needs to be crossed. You need to have a database system everyone trusts. This is the big key to efficiency. Once you have quality data, that can be merged into template documents and forms, the benefits of a great document production system can be achieved. Once crossed, you have a platform for productivity that cannot be achieved in any other way.
So many firms flounder with multiple sources of information, disconnected databases and inaccurate records. This inefficiency usually results from a lack of integration between document management and accounting management. As a result, this eats into your profit and negatively impacts on the way you service your clients.
If you organize all your client and matter information into a single database you get an immediate efficiency hit.
Imagine going to an Electronic Matter for every matter, knowing that all the information contained in the electronic file is true and accurate. All the information you need is in one place.
The beauty of entering information once only and re-using it for multiple matters and document production is that fewer errors are made, there is less staff conflict, clients are impressed by the speed with which you can get things done, and unproductive repetitive work is transformed into high quality legal work and great client service.
2. Organize your template documents and matter documents
For most small law firms, documents produced are evidence of work done. With so many forms and template documents, and government bodies constantly making changes to the documents and rates, it is not possible for a small firm to keep up to date.
Therefore, it is important to consider the following aspects when getting your documents organized and in one place:
- Can every document you need be created using the same standard approach and be saved into a central place?
- Can you incorporate your own template documents into the system?
- Are the forms and associated legal rates kept up to date with government changes?
- Are all commonly used forms available?
- Are all the forms and template documents automated so they can be generated with maximum efficiency using data from a single database?
Are all incoming and outgoing documents saved into the matter, so that you do not need to refer to a paper file and can easily work from multiple locations? If you can answer the above questions in the affirmative, you have organized your documents!
3. Organize your communication documents
The problem with Outlook is that incoming and outgoing emails are not related to matters and confidential and personal ones are mixed up with matter emails. Many firms have a policy to print emails and put them in the manila file, but almost everyone I speak to tells me that this approach creates immense uncertainty and stress, because it is so difficult for this task to be done diligently. It’s also not easy to access someone else’s emails. Faxes are paper based and usually on completely separate devices.
Having client information scattered on different devices leads to disorganization, mistakes, lost productivity, and increased practice risks. This not only makes it easier for you to find everything, but also makes it much easier for small teams to work collaboratively knowing that all communication records are in one place.
By working directly from a unified matter database, all emails and faxes are automatically profiled and saved. So miscommunication, misfiling and lost emails are eliminated.
4. Organize your Safe Custody contents
It is easy to ignore the value of items held in Safe Custody, however I have heard of firms that have been sold where the primary asset for valuation has been the contents of the Safe Custody Register.
If it is disorganized, with poor manual records and weak controls on the movement of the Safe Custody packets, then this practice asset will probably have no value. However a well organized Safe Custody Register can add real value to your firm as well as saving a lot of unbillable time typically created when clients ask for documents or information and you cannot locate it easily. It pays to be efficient. It will impress your clients and build real value into your practice.
5. Be disciplined about time recording
The evidence is clear that if you are doing time based work, you need to time record. Those lawyers who still don’t time record must be making too much money!
A good time recording system (assuming you have organized your database) allows you to add the correct matter quickly, controls the timer easily (as activity is often interrupted), and also helps you record time for a matter before that matter has been registered in the database. The evidence (confirmed in an American Bar Association survey) is that you should expect an increase in billing of about 30% if you do this.
6. Produce bills regularly for smaller amounts
With a bad system, billing is boring. With a good system it can be painless. Don’t wait until the end of a matter or the end of the month. Bill as soon as you are entitled to. First you must produce a bill! WIP is valueless unless you have asked the client to pay. So many small firms are in financial disarray because of a reluctance to ‘bill the bad news’ for fear of damaging personal relationships with long standing clients.
No matter what your costs agreement says, if you leave the bill to the end of the matter, and if you are acting for a person (as opposed to a company), you will tend to discount (the implausible ‘but say’ syndrome), and then your client is likely to negotiate a further discount, whether directly or just by taking a very long time to pay you.
By setting realistic expectations in costs agreements and using simple language, you create the opportunity to regularly generate bills for smaller sums that clients are far more likely to pay without argument. This is simply because they can afford smaller sums regularly and can budget for them.
Making these adjustments will accelerate your cash flow and reduce your working capital requirements.
7. Collect what people owe you
If you are busy running a small law firm, being the debt collector can be the most distasteful responsibility you have. Because you are so time poor, you probably leave it to the last minute as well.
What can be done?
- Ask for a trust deposit when ever appropriate.With a good system this is easy to do.It not only eliminates debt chasing in the matter, but also drags your cash ow forward as you can transfer funds and receive them as soon as you are entitled.
- Warn clients of impending cost blowouts. Good technology will let you know when this is about to happen. It is in the nature of law that unpredictable things with unpredicted costs do occur. Be upfront about it. Preparation and warning is always better than conflict and dispute.
- Stop providing service to clients who have not paid past bills. With a good system you will get alerts about this.
- Use a system that produces useful reports with information relevant for small law firms so that you can quickly and easily chase debt.
8. Involve yourself in the change project
Not having one system that provides all the benefits listed above can prove to be inefficient, costly and frustrating to the business and often the client. A serious thought should be considered taking a look at the demo of such a software because the the fact is that streamlined law firms make more money.
All of the highly successful software projects I have seen over the years have included a Sole Practitioner or Partner who is deeply involved not only in the project itself, but in ensuring that the software produces the productivity outcome planned.
You have probably not deployed software before, and will say words like ‘I know nothing about technology’, so a reluctance to be involved and a desire to delegate responsibility is instinctual. However in this case you have to overcome that instinct and you will be rewarded if you do.
9. Act today!
There are so many reasons to do nothing. Partnership difficulties. Thoughts of retirement. Being busy. General inertia. Complaining is easier than doing.
The simplest, quickest, and easiest action available to you is to organize your practice by introducing the right software available at the right price. This will allow you to fine tune the balance between the work you have, the people you have working for you,, and your firm’s profits.