Through my work in forensic accounting and valuation services, I have had the privilege of working with hundreds of attorneys and their organization. Through this relationship, I have been able to grow close with firm leaders and share stories on effective leadership, and the “brass tacks” of law firm management.
Law firms face the same organizational problems that other professional organizations, CPAs included, encounter. Cash flow issues, understanding their profitability and meeting client demands rise to the top of their issues lists. Professional service providers are constantly chasing their tail trying to solve these issues and not stepping back and allowing themselves to implement the structure needed to enhance profitability and maintain order to meet client demands.
To improve profitability, and their sanity for that matter, managers at law firms need to focus on the operational aspects of their firm first. Yes, this is a “blind” leap of faith, but it is one that is tried and true. Just ask GE how it has worked for them.
Utilization is a key aspect of firm performance, but in the small and mid-size firm levels where partners are workers as much as managers it is often left aside. Partners and owners just assume everyone is doing billable work. Utilization is not as a much a key measurement as it is a change in the firm’s culture. When emphasis is placed on utilization employees and managers know that not only are they being watched but measured.
The measurement of utilization comes in realization. Realization tells us how much of our time or employees’ time is actually billable. If you encounter write downs and they become a constant than the problem solely lies with training that individual or finding the right person for the job. Partners and owners should measure their own realization and utilization to make sure their time is appropriately used. In our firm, partners/owners know if they are not working (i.e. billing) than their time needs to focus on potential revenue generating initiatives or working with staff to improve efficiencies.
When you focus on these operational aspects you will find that work is produced in a more consistent and efficient output. One of the reasons is you remove the stress of pushing items down for staff’s responsibility and realizing that there are a limited number of hours to work. In doing so you ultimately improve:
- Cash Flow and Profitability – more deliverables out the door within budgeted time leads to faster collections and use of time in other aspects to increase billings. Also, because your biggest cost (i.e. Labor) is being managed appropriately your profitability will naturally increase.
- Decision Making – by running these numbers you realize which clients and staff produce the most and are the most profitably helping you decide what is the best way for your time and staff’s time to be used. Also, you can rely on these figures to help you make strategic decisions regarding staffing or service lines instead of going off of a hunch.
Lawyers sell their knowledge in intervals of time. Becoming aware of how much capacity your firm has to provide work product, at a standard acceptable within your firm, will help you shape and develop the firm model you want. Once you develop this structure you can now turn your efforts to whatever other professional endeavors you may want to accomplish knowing that your practice is working efficiently to churn profits. Josh Shilts