How Lawyers in Small and Medium-Size Law Firms Can Help a Lot More People...

A month ago in my newsletter I focussed on The Biggest Challenge Law Firms Face...

Underpinning the massive challenge of fixing lawyer productivity is the linked challenge of learning why failing to plan and follow through with effective business development is the obvious productivity killer.

Even the most potentially productive lawyers cannot do what they need to do if there is simply not enough client file work that they can do promptly and efficiently at a reasonable fee for both client and firm.

Fact...Most small and medium law firms struggle to have a worthwhile business development strategy.

Fact...A very high proportion of those that do have a strategy don’t follow through on it...

many start to wander off course the very first day after finalising the strategy.

Robservation...

The main cause is a perception by far too many of those with the relevant skills and interest that they don’t have the time today to do what they need to do...today!

As we all know, tomorrow never comes, so not enough happens, and in particular those who are supposed to be leading aren’t, are setting a bad example, and very, very, few who should be learning from them achieve any useful business development on their own.

Sadly, they actually do have the time (the same as everyone else in fact), but they are often wasting a lot of it on things that they shouldn’t be doing at all. “Busy being busy” is not busy being effective across the breadth of one’s proper role.

There are various facets to even the most basic business development strategy, one that has definite plans for example as to how it will consistently put the right amounts of the right work into the hands of all those in the practice who need to be doing it.

Fact...A huge percentage of the small-medium legal practices on the planet have liquidity problems at any given time.

To achieve a reasonable return requires the small professional business to achieve 100% of its revenue budget at least, while keeping expenses at or below budget.

This is not in fact what happens in the vast majority of firms. 

Because business development is almost universally inadequate, the team member resources factored into the revenue budget cannot produce the necessary revenues, no matter how productive they are on the volume of client file work they do actually have.

Outcomes are worse still if business development is ineffectual but the whole budget for business development is getting spent, and more.

Typically, as the year unfolds we see firms dropping a few percentage points on revenues and, c’est la vie, expenses are at the same time a bit above budget...surprise, surprise.

A little here and a little there, not really too much to worry about, is it?

Well, yes actually it most certainly is, and here’s a simple example why:

4 Principals have a firm in which they budget for revenues of $3M and expenses of $2,550,000...with a budgeted profit of $450,000 or about $112,000 each. Their salary packages for the work they’re each expected to do are included in expenses actually or notionally.

If revenue for the year is down 5% on budget and expenses 5% up, the reduction in profit is of course not “a mere 10%”.

The new figures are $2,850,000 revenue, $2,677,500 expenses, and profit $172,500...a steep reduction of about 38%.

For all their risk the four partners get about $43,000 each.

Interestingly they do make a profit...albeit just 6% of actual revenue (and 1.4% of their revenue budget).

The big majority of small firms do not make a true profit...and worse, many cannot even pay their Principals a remuneration package equivalent to what they could earn as an employed lawyer elsewhere.

The Bottom Lines...

One of the most important things to get right in legal practice is your business development, because achieving even reasonable profitability depends on it, and you get to assist more people.

Good liquidity depends on creating reasonable profit margins and collecting fees in full promptly, while keeping all outward cash flows under control.

Good liquidity/financial health equals survival, a capability to fund agile and proactive responses to change and opportunities, and an enjoyable future.

Having enough work to achieve budget revenue impacts confidence, with proper training it can impact pricing, and reduce reasonable fees left on the table in the majority of transactions the firm will handle during each year.

The right people simply cannot allow themselves to be too busy to ensure cost-effective business development really is happening and producing the desired results.

Next issue...I take a close look at how one of the better business development techniques for small practices can quickly fall apart, and produce little or nothing for your investment, all because it’s not set up properly and not monitored properly for return on investment and average cost of acquiring the clients you want.

Upcoming Webinar     ”Legal Firm Optimisation-Approaches to Fully Under-Pinning Practice Financial Health”. Wednesday 26 April 2023. 2.30pm NZST...12.30pm AEST

**New video published Monday 20 March 2023**

Lawyers’ Practical Post-Pandemic Marketing...HERE

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