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Law Practice Management Tips
Practice tips are provided to assist solo and small firm practitioners in the management of their law practices. They are not meant as legal advice, nor binding on the Tennessee Bar Association. Please check the Tennessee Code of Professional Responsibility before implementing any of these tips in your practice.
How’s the financial side of your practice? Are you working harder than ever but not seeing your net income increase? Here are some tips to help you get a handle on the financial side of practicing law. If you miss any of them, just scroll down and you’ll find those you’ve missed below.
Tip No. 1. Prepare an annual cash flow budget. Then break the annual budget down by month, budgeting for all of the expenses you know will be incurred in the month when they must be paid. Be sure to include a discretionary amount for unexpected expenses and your draw. And don’t forget those annual expenses that can take a bite out of any cash flow plan - like malpractice insurance. Project your revenues based on the firm’s past performance. If you don’t have historical data to build a revenue model, build one based on anticipated hours you will bill multiplied by your average billing rate and discounted for write-offs, the average time it takes you to bill and the average time it takes to receive the fees you have worked. At the end of each month, look at your performance against your budget to see how you’re doing. Make adjustments as necessary.
How’s the financial side of your practice? Are you working harder than ever but not seeing your net income increase? The next few weeks are going to be devoted to the steps you need to take to make sure your hard work pays off. Here are some tips to help you get a handle on the financial side of practicing law.
Tip No. 2. Review annually the firm’s practice area mix and significant client relationships to determine how profitable they are. When was the last time you reviewed what you’re doing, who you’re doing it for and how profitable it is? Look at the cost of the resources used to staff practice areas against the revenue they produce. If they are losing money or are only marginally profitable, consider moving out of that area of practice and focusing on those areas that are most profitable. If providing legal services to existing clients in a marginally profitable practice area enables you to keep certain clients who you represent in more profitable work, you may want to continue in the practice area, but be selective about any additional clients you take. Do you have one or two clients that require an enormous amount of hand-holding (for which you cannot bill)? Review the amount of non-billable time you’re investing in those clients. Could that time be more profitably spent?
Tip No. 3. Delegate work to the most appropriate level. One of the best ways to increase revenue is to increase the volume of work that you have. But you can’t do it all. You need help. Delegate work to appropriate levels. Senior attorneys should not be performing work that can be performed much more efficiently and profitably by paralegals or less senior attorneys. Proper delegation frees up senior attorneys to perform more sophisticated work at higher rates; and, as importantly, to develop new business. Less senior attorneys and paralegals can perform work at a lower cost to the client and more profitably for the firm. Firms often overlook the revenue opportunity that their paralegal staff represents. Proper delegation allows the firm to successfully manage an increased volume of work. Billing for paralegal time is another opportunity the firm has to increase its revenue while reducing the cost of services provided to its clients.
Tip No. 4. Delegate administrative functions. Many times attorneys spend too much time performing the firm’s administrative functions. Do you know the value of the time you’re spending on this non-billable function? Record all of your time spent on administrative functions over a period of 3 months. Multiply the number of hours by your average hourly rate, annualize it and then discount it by your average realization rate. That is the cost of your performing these administrative functions each year. That is the lost opportunity you had to develop new business or work on the business you have. Consider: With that money, could you afford to pay someone else to perform those functions, relieving you of the distraction from your practice and improving your opportunity to increase revenues. Further, an experienced office manager whose focus is on the business side of your practice will be invaluable in organizing your practice and focusing on the needs of your staff.
A good relationship between a lawyer and his/her legal assistant is critical to the lawyer’s productivity. In today’s market, a qualified, experienced legal assistant is hard to find (and to sometimes keep). Salary ranges continue to climb as the need for their skills continues to outpace the supply. Here are some practical and maybe some new ideas on how to improve the relationship between you and your legal assistant and to improve the legal assistant’s productivity.
• Who has the ball? Delegation and communication must be clear. Give clear and complete instructions. When giving instruction to your assistant as to the status of a file, end the discussion with a question: "So, what’s the next step and who is responsible for taking it?"
• Face Time. Many lawyers want to give instructions face-to-face, via phone or by yelling from their office as soon as something occurs to them. These verbal instructions are also interruptions to your assistant’s flow of work (that she is doing for you). If you are simply off-loading information, do so via e-mail, a note or voice mail. Dictate instructions or information to your assistant. Save the face meetings for daily or weekly meetings with your assistant where a broader view of the day’s/week’s work is needed, sensitive information is discussed or subtleties need to be explained.
• Don’t be so dependent! Look for ways in which you are duplicating administrative tasks or using your assistant in an un-productive manner. For example, legal assistants are commonly used to sort mail in various ways before it can be given to the attorney. They often are expected to handle personal business of the attorney, paying bills, etc. They are asked to screen client calls, get coffee and straighten your desk. Become better at managing your mail. Pay your bills on-line. Get your own coffee – the break will refresh your mind and become better organized yourself. Your legal assistant can do substantive work for you – sometimes billable – if you can become proficient in these administrative and personal areas.
• Ask the question. Ask your legal assistant how she feels you can make better use of her. Talk about what you’re doing that works and that doesn’t work. Listen and be open to trying her suggestions, even if you don’t want to.
• Let them know they are needed. Tell you legal assistant how important he is to your success. And don’t wait until "secretaries day" to do it. Tell them when they’d least expect it!
If your trust account records are in a computer program, regularly back up your data and print a copy of the transaction register and the individual client ledgers each month when you conduct the bank reconciliation.
Trust account records must be maintained for a minimum of 5 years. Remember that it's probable that your back-up hardware will become obsolete during that period. If your hardware malfunctions, you may not be able to repair or replace it.
Keeping hard copies as described assures that you have complied with your responsibility to maintain records for the requisite period without being concerned about technological obsolescence.
Many of the tech tools we use in our offices help reduce the time it takes to do our tasks. The value of your services does not diminish because the time it takes to do the tasks shortens. So how do you approach billing for these services that you’ve learned to more efficiently provide? You can approach it in at least one of the two following ways:
• You can charge less for the service because it takes less time. Corollary: you must get more work to fill the available time saved; or
• You may charge what the service is "worth" without reference to the time it takes consistent with the fee agreement. Corollary: you go home at a decent hour or get more work to fill the available time saved and pocket the enhanced income.
Define a scope of services that you can comfortably price at a set value. Most likely these will be services for which you already have the intellectual knowledge (forms, similar contracts, etc.) and that involve tasks you’ve done many times. Use the hourly rate for that part of the representation with more uncertainty. Define your scope of representation in your engagement letter in two ways: (1) services for the set fee and (2) services that will be charged at an hourly rate. Better yet, use two fee agreements sequentially with separate scopes of representation to give the client a chance to decide if the matter is worth pursuing after the fixed price part is completed.
Use the tech tools but do not short-change yourself in the process.