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Organize Your Firm to Grow Your Profits

By NJSBA Staff posted 05-22-2018 08:44 AM

  

The following is written by Richard Hugo-Hamman, Executive Chairman, LEAP Legal Software. LEAP is a sponsor of the New Jersey State Bar Association.

It is a common misconception amongst 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 obtained 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 businesss efficiency by using great technology. The rise of self check-ins/check-outs at airports and grocery stores provides clear insight 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. Technology is no longer an unnecessary expense but is an asset to any business, as well 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:

  • Give your staff the tools they need to do more work faster;
  • Delegate more work to existing staff so that you can do the high value work;
  • Reduce legal accounting costs by re-engineering the way you do your case 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 fail due to 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 case information into a single database, you get immediate efficiency.

Imagine using one software system for all your case information, 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 only once and re-using it for multiple forms and documents is there are fewer errors, less staff conflict, and unproductive repetitive work is transformed into high quality legal work and great client service.

2. Organize your template documents and case 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 one 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 case, 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! Our software allows you to do so.

3. Organize your communication documents
The problem with Outlook is that confidential and personal emails are mixed up with emails pertaining to your case. Many firms have a policy to print emails and put them in the 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 are done on separate devices.

Having client information scattered on different devices leads to disorganization, mistakes, lost productivity and increased practice risks. However, with our software you can organize your communication by working with Outlook, so that every piece of written communication, incoming or outgoing, is saved into the case. 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.

Working directly from the case, all emails and faxes are automatically profiled and saved into the case. 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 find the correct case quickly, controls the timer easily (as activity is often interrupted), and also helps you record time for a case before that case 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 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 case, 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 whenever appropriate. With a good system, this is easy to do. It not only eliminates debt chasing in the matter, but also drags your cash flow forward as you can transfer funds and receive them as soon as you are entitled.
  • Warn clients of impending cost blow outs. 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 efficient software, 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. Our software, as it is designed specifically for small law firms, produces the reports you need, on demand, to help you understand the debtor profile for each client, fee earner, and the entire firm.
8. Involve yourself in the change project
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 must overcome that instinct, and you will be rewarded if you do.

If you approach the implementation of our software with a determination to succeed, and implement all the business process changes that I have mentioned above, then you, like many others, will grow your profits, usually by far more than you ever anticipated.

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. However, to grow the profitability of your firm while providing a better service to your clients, you must change something. The simplest, quickest, and easiest action available to you is to organize your practice by introducing the very best software available to you. This will allow you to fine tune the balance between the work you have and the people you have working for you.

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