As fast as the legal profession is changing the more some vitally important things are staying the same!

Way back on 1 April 1988 I started Knowsley Management with the target market of small-medium law firms, because I had observed from the inside that they weren’t often profitable.

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Sadly, I quickly discovered that many lawyers in my target market genuinely believed that such law firms shouldn’t be existing to make a profit, and some had no hesitation in making that very clear to me.

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Thankfully, I reasoned that I could ignore those lawyers because the Australian profession was large enough to provide me with enough work to make my own nascent business profitable.

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Here we are more than 36 years later still in business and I'm still helping those lawyers who do “get it”.

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But what about the others?

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Back in 1987 I came to the conclusion that most lawyers in private practice in smaller firms thought they were “doing well” when the reality was far from that.

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It was clear to me that:

·????? the years of study…

·????? the lowly-paid years as an employee gaining real-world experience to start to become useful to clients…

were not paying reasonable dividends.

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Clearly, capable tradespeople were far better off financially, and lawyers were also far worse off than most other professionals.

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Many in their own practices were not earning reasonable wages, let alone making a profit.

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Of course, most believed they had “status” in the community as a lawyer.

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Behind the scenes hidden pressures impacted mental health, and relationships, because too many lawyers felt the need to demonstrate their status was deserved, outwardly in where they lived (and holidayed), the vehicle they drove, and where they schooled their children.

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Most were doing these things without their businesses generating a profit, and many without even drawing a proper wage.

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To me the lack of financial health in most practices in my target market had obvious root causes, which were not difficult to rectify.

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In essence, lawyers needed to behave professionally while just making their practices more sensibly businesslike.

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This approach has been very successful.

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There were a couple of major elephants in some very small rooms all those decades ago.

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1.???? Professional bodies (made up of lawyers of course) had long-standing rules restricting advertising, that “normal” businesses were not constrained by.

2.???? Less obvious from the outside, but nevertheless very real to those of us immersed in the traditions of the profession, was the often over-bearing fear of being ruled to have been over-charging.

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As society changed, wages grew, computers arrived, lawyers' premises had to be made bearable to work in, expenses grew ...while the opportunity to improve revenue appeared seriously constrained.

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Genuine practice financial health was seemingly further away than ever.

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In 2024 some of the worst constraints have gone in the pricing and advertising areas (not all), but has the behaviour of lawyers as businesspeople changed enough in how most operate their practices?

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Robservation…The answer disappointingly is a resounding “No”!

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Is it now likely that the big majority of smaller practices will be genuinely financially healthy, providing hard-working owners with:

·????? Demonstrably appropriate remuneration for the work they do?

·????? A reasonable profit for running an excellent service business?

·????? A valuable asset to sell upon inevitable succession?

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Why is the answer a blaring “No”?

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Robservation: Because most lawyers in smaller firms are still not being businesslike in the things that will make a real difference.

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Missing usually:

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·????? Adequate working capital and liquidity...

·????? Truly adequate budgeting…

·????? Truly useful marketing…

·????? Excellent structure…

·????? Fully effective cash flow planning and monitoring…

·????? A full team of employees with enough client file work at the right pricing to create decent margins over expenses…

·????? Clarity about what must be dealt with immediately to stop the hole that’s being dug getting ever deeper.

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A common reality:

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·????? The firm is severely under-capitalised…

·????? Revenues are insufficient to achieve break even…

·????? Owners are not drawing a proper salary/benefits…

·????? The practice has no capacity to reinvest wisely in the firm’s future…

·????? The firm owes too much, is unable to borrow further, and even a cursory examination of the balance sheet reveals the firm has no net value for owners.

·????? The practice is trading insolvent…unable to pay trade creditors on time, late with superannuation guarantee payments and GST, in payment arrangements with the Taxation Office over old liabilities while unable to meet current ones, owners holding breath as each wages bill falls due…

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All this is common, and yet some commentators continue to pontificate over why the profession has a mental health problem, clearly not having any grasp of the fundamental causes.

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Lawyers continue to attend major conferences where firm financial health does not get a look in on the agenda. Professional bodies publish glossy journals studiously shying away from law firm profitability issues.

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Robservation: Artificial Intelligence is not as big a challenge for the profession as the widespread absence of business commonsense. ?

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Legal professionals are, on the whole, intelligent, better educated than most, and nice people, so what needs to happen is a general awakening to the necessity for dramatic improvements in business management, driven by the professional bodies themselves. They are supposed to have the best interests of the profession at heart.

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Improving the profession in this way will also have further positive ramifications for clients.

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It actually isn’t rocket science, as the smaller firms that have adopted the right approaches have done very well indeed. Owners have earned proper incomes for jobs well done, have earned decent returns on their investments in practices, and have successfully passed their valuable interests on.

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Owners in those firms did not somehow “get lucky”.

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They were fortunate that at the times when changes needed to be made there were enough owners who could see what was needed, from the advice they were given, to win the day.

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They made the changes, stuck with the processes, and reaped the proper rewards.

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My mission for the remainder of my most enjoyable consulting career continues to be to help as many lawyers as possible who can see the need to change…to make the right changes!

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My teaching, mentoring, and training platform is?LearnDesk

Recorded webinars, live webinars, practice management resources, start-up support, mentoring, useful planning documents, regular live video calls, all channelling long and deep experience supporting your practising success.

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