Not growing fast enough? Her are five common things that can slow your growth and stall law firm profits.
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The New Law Firm Owner
Lately, I’ve been meeting a new breed of attorney. They see their firms more as a means to an end than the end itself. Their goals are expansive; they start their firms younger than their parents might have, and their expectations are significantly higher. They are entrepreneurs.
This leads to some problems. These lawyers are easily frustrated when the firm doesn’t grow at the expected pace. They’re frustrated because they are not achieving their financial and growth goals. Many are barely making a living. And they feel demoralized if they believe they’re lagging behind their law school classmates.
Five Things That Sabotage Law Firm Growth
When attorneys ask for strategic financial advice on improving their law firm profits, we invariably look at these five things that slow firm growth.
1. The Theory of “JIT” Cash
Cash is the air that any business needs to survive. Without it, no firm can function for more than a couple of weeks, much less grow. Like a lot of business owners, my father had a theory about JIT cash — cash will always show up “just in time.” For a lot of firms that isn’t always true.
You must closely monitor your cash.
How much cash do you have now, and how much will you have at the end of every week for the next six to eight weeks? This is called a cash flow forecast. It tells you what’s coming in and what’s going out week to week. Until you have a reliable balance of three (or more) months of operating cash in the bank, your bookkeeper needs to prepare this forecast every week — and you need to look at it.
In addition, every business needs a line of credit. Banks only like to give them to people who don’t need them, so apply when you don’t need one. And every time you have a good year, make sure you apply to have it increased.
Related: “Seven Words to Know Before You Ask for a Loan.”
2. No Specific Plans for Growth
Many business owners seem to think their businesses will grow simply because they declare they want them to grow. And they might. At a whopping 5% to 7% per year. But the entrepreneurs I meet want something more in terms of law firm profits.
To get more you have to plan for more.
What is your BHAG (Big Hairy Audacious Goal)? Where are you going to be in 10 years? Three years? At the end of this year? To get there, you need to make it so real you can touch it, feel it, smell it, taste it and see it. You need to write down your goals and make them SMART:
- Specific
- Measurable
- Achievable
- Relevant
- Time-bound
3. Random, Unmonitored Marketing
I can’t tell you how many firms I have seen do what we call “Random Acts of Marketing.” They “try something out” with no plan, no goal and no idea what will happen or how many clients will come from it. They do no tracking or measuring, so there’s no way to tell if something succeeds or not. These firms are throwing away good money.
To turn a profit, you must have a specific marketing plan and budget.
Spend on activities that have a specific expected return and measure their actual return on investment to evaluate their effectiveness. How else will you know where to put your money?
4. Failure to Plan for Capacity
I’ve watched so many lawyers market intensely, get a bunch of cases and spend so much time working those cases they have no time for marketing. With no new cases in the pipeline, they start marketing again — and the cycle repeats itself.
As your firm grows, it can be harder to see what’s happening — it takes a slightly different form than when you were smaller. How it looks is work stacks up, people get overloaded, you hire somebody new, the workload drops, and then it starts to pile up again. You lose people (firms often lose good employees during the overload period), you hire more people, and the cycle continues.
It’s a capacity problem, and until you solve it, it will be impossible to sustain real growth.
- You must understand the capacity of each person or team.
- You must know how long each case takes and how much work it requires, in detail.
- And you must know what’s in the pipeline — how much work your marketing will generate — so you can plan for the future.
Once you know this, you can look three, six, even nine months into the future and staff up or down ahead of the curve.
Wouldn’t it be nice to know that cases won’t stall because you are over capacity? To increase your law firm’s profits, you must have trained people ready to work when you need them.
Related: “The High Cost of Turnover: Your Employees Cost Too Much to Lose”
5. No Mechanism to Course Correct
As entrepreneurs, we are all moving quickly and are often off to the next thing before the last one is finished. I get it. However, it’s imperative that you stop to look at what’s working and not, and figure out the underlying reasons for both. Once you find those reasons, you can fix what is broken and make sure you repeat whatever brought you the best results — and do so every single month.
Create a feedback loop for projects and everyday business operations.
Using a scorecard or dashboard where you can quickly see what is on track and what is off track will allow you and your firm to make the changes that impact your bottom line.
Accelerating Your Law Firm Profits
Recently, I had a conversation with a mother-daughter pair that epitomized the divide between the traditional and the new entrepreneurial attorney. The mother likes the firm just the way it is; the daughter’s eyes lit up when we talked about tripling the number of attorneys.
Today’s entrepreneurs want to move fast. There isn’t a magic pill that fixes everything, but focusing on these five things can accelerate your growth and help you build the firm you envision.
Image © iStockPhoto.com.
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