By Rob Knowsley
Running a legal practice is quite a complex endeavour just to be viable and to survive. However, mere survival is not the objective of a good business.
The vast bulk of the legal profession is small-medium firms, and unfortunately, many of them are not particularly profitable. Good profitability is essential to ensure ongoing viability, providing both proper remuneration for principals working in the practice and an appropriate return on their investment. Financially healthy firms tend to have a better professional indemnity risk profile and not surprisingly, smaller practices don’t fare too well in this area.
Many books have been written on the subject of running a legal firm but there are some key factors that will cruel profitability if you don’t get them right. In the upcoming masterclass series, Improving Law Firm Profitability, I’ll be exploring these and offering practical strategies you can implement to ensure your firm endures and is profitable.
With poor profitability endemic in firms that aren’t run well, liquidity and their very viability is constantly challenged. This raises stress levels, which in turn inhibits clarity of vision and energy to focus on activities that will take a firm far beyond mere survival.
Just as there needs to be robust systems and processes for avoiding professional indemnity claims, there needs to be clarity around everything that is important for healthy profitability, and processes in place to ensure consistent attention to all important issues. All too often profitability is assumed, rather than placed front and centre in a business plan that fully recognises the upsides of healthy profitability. Understanding the upsides of reliable financial health is a necessary precursor to putting in place processes to eliminate the key killers of profit and to resolutely adhering to them.
Most principals will recognise the value of any significant reduction in anxiety and stress that poor liquidity causes. Even more positive for long term financial health is the ability to more easily and confidently invest in opportunities that present themselves, and to have the clear mind, time, and money to invest in business development.
Being able to be proactive rather than mostly reactive is an indicator of a really good business, and a closely allied benefit is being able to consistently reject work that is inappropriate, either in itself or because the fees apparently obtainable are inadequate for the effort and risk. Far too few legal firms are in that happy place.
Consistent financial health provides law firm management with the time needed to move from being regularly in and out of survival mode to being permanently and genuinely innovative across a number of areas. This includes carefully experimenting with various alternative fee arrangements and smarter matter scoping, and identification of value through the clients’ eyes, to avoid leaving significant parts of reasonable fees on the table.
Financially healthy firms are on the front foot and have the time and resources to work on multiple areas of profit improvement that might each seem relatively unimportant when viewed in isolation, but are incredibly powerful when they operate in concert.
Having spent over 30 years as a practising lawyer and consulting across the profession, I’ve been keenly placed to identify they key profit killers of law firms. In my upcoming masterclass series, I’ll be taking principals, partners and practice managers through how to identify these profit-killers, proven strategies to overcome barriers to profitability and how to plan for long term financial success. Attendees will be able to take advantage of opportunities to assess their own firms and receive practical guidance.
Rob Knowsley is an experienced advisor to law firms, providing advice and guidance to practitioners across Australia and New Zealand who are eager to maximise their law firm’s profitability. With over 34 years experience as a practising lawyer and consultant, Rob provides modern law firms with practical guidance and proven solutions to help them minimise risk, increase return on investment and promote long term health for their practice.