Lawyers want to practice law. They do not want to spend a lot of time pouring over numbers,” said law firm practice management guru Erik Mazzone.
Mazzone has been retained as a practice management advisor for Lawyers Mutual of North Carolina.
“With legal technology evolving at a rapid pace at a time practitioners are dealing with challenges from the pandemic, we knew our insureds would appreciate a free practice management resource to help them operate more efficiently and with less risk,” said Julie Beavers, director of client services for Lawyers Mutual.
Mazzone is authoring informative articles and providing one-on-one consulting services for the company’s insureds. Insurance holders receive three hours of consulting per year at no additional cost. Consultations are virtual.
Mazzone has over 20 years of practice management experience as the founding director of the Center for Practice Management at the NCBA and as a managing partner at a small law firm. In addition, he has written and lectured at law schools.
‘I’m Working Too Hard’
A common complaint Mazzone hears from lawyers is, “I’m working too hard and not making enough money.”
“It requires us to dig in on a firm’s finances,” he explained. “Is there too much staff? We’ll look at a metric that allows us to compare apples to apples, so revenues per employee. We’ll look at things like the billing rate, the realization rate, the collection rate. We’ll look for places where there is revenue leakage at the firm. Sometimes someone just hasn’t moved their billing rates in 10 years.”
“Firms often set a billable rate; then there’s not a lot of analysis necessarily afterward to check on profitability. So a lot of times it’s just everybody taking their draw, and if the bills are paid and the employees are paid, and there’s a little money left in the account afterward, that’s good enough,” said Mazzone.
“But after a year and a half of high inflation, the salaries have gone up for the staff but not for partners. There hasn’t been enough money left over because the firm hasn’t necessarily increased its top-line revenue.”
Mazzone sees bottom lines getting even thinner if a recession occurs in 2023.
“Law firms have traditionally solved their problems with growth by hiring people to do the work. But, over the last two years, they found themselves with the same problems, and they cannot do it in the way they have become accustomed to by adding people.”
The Answer is Technology
For many firms, the answer is technology, according to Mazzone.
“Start with practice management software. Is there a role here for document automation and using a centralized database to try to create some lift in terms of efficiency and get rid of what used to be a person,” explained Mazzone. “Many firms have the same information keyed in five times by three different people in Word documents and Excel spreadsheets and paper files. You start by centralizing this data into a database. Once you have your data centralized and updated, you can use that data in different ways.
“One of the places you can get a lot of bang for your buck is measuring your most frequently produced documents, letters and contracts, and introducing automation. Instead of entering the same piece of data five time and cutting and pasting the same contract 10 times, you write the contract once, and enter the data once.”
If a recession comes to pass, firms will need to increase their marketing efforts. Mazzone said he is advising clients to start with referral marketing.
“It doesn’t require a lot of money. It doesn’t require a lot of technology. Lawyers need to figure out how to build a network of folks who know them, like them, trust them, and are willing to refer business to them on a repeated basis,” said Mazzone.