5 Reasons Small Law Firms Go Broke

reasons small law firms go broke
Judge Dan Hinde

If you’re anything like most law firm owners, you had a rude awakening moment. Maybe it was after an 80-hour week. Maybe it was after a disgruntled employee quit and you realized you had no new cases on the calendar.

Or maybe, a pandemic hit and you realized you had no plan.


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No plan to pivot your client services. No plan to go virtual. No means of making a quick change to your operations so you could keep the cash coming in. No automated marketing to generate leads.

Whatever the catalyst, there likely came a moment when you realized that law school didn’t teach you anything about running a business!

Yes, you know all the practical things about defending your clients, about protecting their rights, about the laws that govern this country. In fact, you might be one of the smartest people you know! But if you leap into entrepreneurship without learning a little something about business management, you’re in trouble.


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5 Major Errors

I have worked with thousands of small law firms in all practice areas and from all over the country. I can tell you that typically there are 5 major errors I see being made when I finally sit down with a lawyer who is staring at a dire P and L statement and teach them how to reboot their system so they can finally score big.

1. They don’t have goals and don’t track their numbers.

How can you get where you want to go if you have no idea what’s going on? You can’t manage what you don’t measure and you can’t measure what you haven’t defined. Set solid financial goals, and track them. Know what you’re spending on marketing, on office rental, on paper. Everything. Getting a handle on what you’re spending or need to spend will give you a better idea of what you need to bring in to make a profit.

No it’s not always comfortable and you may be shocked at what you find out about your own business, but it’s at that point that you can start turning it around before it becomes a giant mess that you can’t crawl out of.
Maturity in entrepreneurship requires a willingness to get real with yourself!

2. They fail to consider personal ecology.

How are you interacting with your environment? Are you in alignment with your goals? Are you balancing work and play? Freedom is not one-dimensional, so you have to know if the way you are working can actually support the life you want, the amount of time you want to spend with your family and the kind of car you want to drive. Not the one that “makes sense.” The one that lights you up and makes your spouse nervous!


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I see a lot of lawyers who are tolerating conditions they would NEVER advise a client to tolerate. You started your own law firm to feel free. How free do you feel?

3. They are control freaks.

Good grief. Delegate already! Are you the boss or what? If you don’t hire staff, and I don’t mean your cousin who is out of work, then you won’t be able to loosen your grip and you will burn out. You’ll continue to be stressed out and overwhelmed, trying to do ALL the jobs. What did you go to law school for? To set appointments? Vacuum the office? Build your website? No. If you want your own law practice, then you need to put the right people in the right places so you can focus on YOUR zone of genius: the law.

4. They don’t have policies and procedures in place.

I recommend doing this before you hire someone. If you don’t, then when it’s time to deal with an employee issue, employee onboarding or accounts receivable, you won’t have a structure in place that provides a solution.

2020 showed us how important policies and procedures are. How much easier would it have been to pivot to a virtual model if all of your employees knew EXACTLY what was expected of them in writing!? Policies and procedures protect you and they make the business of managing a law firm a LOT easier.

5. They forget that their number two job is providing legal services.

But I thought . . .? Nope! When you have your own practice, your number one job isn’t providing legal services, it’s SELLING legal services.

If you don’t have your law firm set up like a real business yet, you’ll have a tough time seeing consistent growth. Systems set you up for freedom. So you’ve got to put automated marketing systems in place that allow you to generate leads on autopilot, even on weekends, even when you’re on vacation.

Remember selling is a service. You are in the business of solving problems and helping people. You can’t help anyone if you don’t let them know you exist. So your number one job is marketing so that you can do your number two job of being the lawyer they need!

I hope what you’ll take away from this article is the fact that the 5 main reasons law firm owners go broke are actually 5 very simple things to fix.

You’ve just got to have a plan in place that supports the exact kind of firm you want to run and the exact kind of life you want to live. Without a plan, you’ll be winging it. You’ll probably work more hours than you want to work for less money than you want to make. That’s not freedom.

And freedom is why you did this in the first place right?

For more information visit HowToManageASmallLawFirm.com.

RJon Robins

RJon Robins founded How To MANAGE a Small Law Firm in 2008 with nothing except the support of his wife and co-founder, Alejandra Leibovich, and the experience he had from working as a Law Office Management Advisor for four years at the Florida Bar. Today How To MANAGE A Small Law Firm has grown to be the largest provider of outside C-Suite services for small law firms and has been named by the Inc. 5000 one of the fastest growing companies in the U.S. for the last five years in a row.

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