Every great business begins with an idea, a vision for a new venture. It’s exciting to brainstorm new ideas and dream about all the possibilities the future might hold. Luckily, your success as a law firm owner does not depend on creating new ideas that no one else has thought of before.
Successful law firms have a plan to bring ideas into reality and execute them. The difficult part is to create a strategy to implement your plans, which only few business advisers actually offer help with. The next step is to constantly measure the progress and make necessary changes along the way.
Here are three ways a proactive CPA and business adviser is able to be your ally and help you put your plans into action:
No. 1 – Anticipate Cash Flow Cash flow is the life-blood of your business. Regularly forecasting your upcoming cash requirements is essential to avoid pitfalls, such as not meeting payroll.
Despite popular belief, the cash flow report isn’t complicated to generate and understand. If you have the right template and set it up correctly, it will only take your bookkeeper a few minutes a day during the week to update it.
Having clarity about the projected timing of incoming cash and outgoing expenses frees you up from the day-to-day worries of not knowing what’s going on in your pocketbook, which allows you to make proactive decisions.
It might influence the scheduling of your workflow if you see that you might run out of money at the end of the month, so it helps to prioritize different projects that have retainers and then collect your fees. Another option is to give yourself enough time to accelerate collections of outstanding invoices, or to access a line of credit from your bank.
No. 2 – Identify, Track and Measure Your KPIs You might have a gut feeling of how your business is doing or how fast your customer base is growing, but actually measuring the performance of the various aspects of your law firm brings you a higher level of clarity. Knowing exactly how your strategy is working allows you to make timely changes in order to accelerate your firm’s growth.
There are many dashboards and collections of the most important key performance indicators (KPI’s), but they can be complicated to fill out so very few attorneys actually use them.
There are various standardized sets of KPIs applicable for law firms. However, for maximum impact, we highly recommend focusing on just a few at a time. For example, if you have a steady stream of new clients but your profits are still low, focus on evaluating your pricing structure and your employee cost.
No. 3 – Evaluate Pricing for Adequate Profits Accurately pricing your services is an art and science that you should master. Regardless of your billing method, client revenues have to cover three distinct categories – the cost of providing the service, overhead, and, what most practitioners forget about, the profits of the owners.
You need to start by defining a clear personal goal of how much money you need or want to take home. Next, list and add your current and anticipated overhead expenses. Divide that figure by the maximum number of billable hours you want to work. This formula changes when you hire billable staff, but it’s a good start.
When you first hang out your shingle, it is tempting to charge low prices to attract clients. This strategy might work temporarily, but it is a dismal trap that is difficult to escape and is ultimately unsustainable.
Many solo practitioners sacrifice their own profits for the sake of charging less. However, when they start hiring staff to share the workload, suddenly the bill ables are barely enough to cover payroll and overhead. Those practitioners then realize that they made more money before they even had staff. Don’t be one of them!
Don’t forget that you’re doing a disservice to your clients by not structuring your fees correctly, as it is impossible to represent your clients’ best interests while knowing that their case will be a loss on your books. A better strategy is to find cases where you can truly make a difference, attract clients who appreciate that you solved their problem, and are also able to pay your correctly positioned fees.
Keep in mind that your law firm’s success depends on the strategic execution of your unique business plan. A proactive business adviser and CPA that specializes in law firms is a trusted resource when you create and later execute your business plan, and is a great sounding board for making smart decisions.