Lawyers and money do not go together like peas and carrots. Actually, let me rephrase that: Lawyers and talking about money do not go together like peas and carrots. Lawyers and managing money do not go together like peas and carrots. And lawyers and setting competitive market rates do not go together like peas and carrots.
Lawyers and making money, however? Yeah, that goes together like peas and carrots. Lawyers, like every group of business professionals, want to make money. It is the antecedents for doing so, however, that get in the way. Peas, meet … Brussel sprouts.
It’s 2017 and It’s Time You Got Paid
Here are some solutions for making more money this year that don’t require an accounting degree.
Discuss Money Upfront
Even elephants in the room were once wee baby elephants. But, allowed to grow and flourish, and to literally eat all of your hay, they become problematic. The fee question is one you don’t want to let linger. In talking with potential clients, address your fee as soon as you can, without appearing callous. You’re not running a pro bono or low bono practice (at least not intentionally), so the foundation of any attorney-client relationship is an agreed-upon rate between the parties. If your potential client is not willing to pony up a retainer, or starts to squirm when you relay your fee structure, it’s time to think about pulling the plug. Don’t waste any more time exploring the engagement because that’s even more of your money down the drain.
- For initial pricing discussions with clients, it helps to have a settled fee schedule. Know your own rates and communicate them clearly to potential clients. And if you discount, do so intentionally.
Rehab Your Rates
You should examine whether your rates continue to work for you on an established schedule anyway. Consider this your official kick in the pants. Most lawyers I talk to don’t charge enough. How do I know? Because their competitors tell me the rates they won’t release to them, and I get to compare fee structures across firms. Of course, I can’t share confidential information. So, what is a thoroughgoing attorney left to do? Start with the Clio Legal Trends Report, which relays average billing rates for the contiguous United States. Check your jurisdiction, and if your rates are not above the average (remember, it’s an average, and you’re certainly not average, right?), round up.
Of course, understanding that you’re not charging enough is one thing. It could also be that you’re not charging in the right way. It’s unfortunate that many attorneys see the adoption of alternative fee structures as a major concession to cost pressure, wrought by modern clients, when those alternative fee arrangements actually represent a great compromise between lawyers and clients. Fixed fees, for example, may be an effective value proposition for the client (there’s a fee cap) and the law firm (the acquisition of expertise means an attorney can perform work more quickly while charging more for it).
- One of the most dramatic things you can do is to adjust your law firm billing rates. Increasing your rates is one clear method for vetting clients with an ability to pay, while adopting alternative fee structures can help balance out the responsibilities of lawyers and clients.
Adopt Electronic Payment Methods
At this point, very few law offices are not at least partially paperless. Most lawyers own a smartphone. Yet these same people take payment by check and money order. If you’ve realized the efficiencies wrought by technology, why are you still managing your law firm payments in the same old way? Especially if you’re attempting to represent modest-means clients, it’s infinitely easier for your clients to make payment via credit or debit card, and pay the balance off over time. It’s a de facto payment plan — which, see above, you probably don’t offer anyway. Since the process of paying via plastic is much simpler than acquiring cash or a money order, you’ll also be paid faster. If the theory is true that you should endeavor with your whole soul to get an initial retainer, because it may be the only money you see from your client — well, allowing those retainers to be paid via credit card means that you’re more likely to get that money in the first place. There are several methods for processing payments online, including those built for lawyers, like LawPay. If you’re worried about the ethics issues associated with credit and debit card processing, those are relatively easy to overcome.
- Invest in online payment processing — if you don’t, your competition will — and so will your potential clients.
Understand the Relationship Between Your Overhead and Your Revenue
This seems like something a greenhorn would say about business management, but there are thought processes and discussions relating back to overhead that lawyers just do not consider. First, many small firms do not effectively monitor their overhead. They can’t tell you what their businesses costs are; or, they pull a figure from thin air. They don’t know what their monthly expenses are. They can’t see trends in expenses. If you’re not keeping track of all that, you will never know how much you have to make to cover your overhead. And, if you don’t know much you need to make to cover your overhead, you won’t know how much you need to make to have a subsistence wage. Oh, and if you don’t know how much you need to make for a subsistence wage, you’ll never understand how much you’ll need to make beyond that to have the lifestyle you actually want. Coming around to understanding the complete financial picture of your life as an attorney is sort of like building a pyramid, even if most lawyers attempt to establish that pyramid on a foundation of sand.
- Establish a budget to get a handle on your overhead and it will more effectively inform every financial decision you make about your law firm.
Make Efforts to Collect on Your Accounts Receivable
Who has two thumbs and has money out there just waiting to be collected? Um, you do. (Please point at yourself now. No, with your thumbs. C’mon, man.) Many solo and small firm lawyers are so dedicated to acquiring new business that they neglect the work they’ve already done. Even highly transactional law firms do not immediately get paid for all of the work they do. And when payments linger, it’s easy to forget about them.
Unless you have a specific method for regularly reviewing the status of accounts receivable, you’re far less likely to collect on them. A lot of attorneys give those accounts receivable up for dead and are too quick to judge their clients as malefactors when they’re not paid immediately. However, there are any number of reasons clients don’t pay. If all it took to get paid was a small push, doesn’t it pay (see what I did there) to make it? Lawyers are trained to think up the worst imaginable scenario, and to plan for it. But giving your clients the benefit of the doubt, at least at first blush, is a more prudent course of action than assuming they will never pay anyway. Fortunately, it’s easier than ever before to quickly review the status of accounts receivable via modern software tools, many of which feature upfront graphical representations of the present value of those accounts.
- Check up on your accounts receivable in a consistent manner and you’ll find some money there. Collecting on lingering accounts receivable is kind of like finding change in your couch cushions or a $20 bill in your jeans pocket — and it feels just as good.
A Little Tenacity Pays Off
Making money requires a pinch of tenacity, not necessarily an in-depth understanding of finance. Adopting one or all of these suggestions for your law firm will allow you to add cash this new year.