How Law Firms Can Avoid Failure

Failure is not new to law firms, but procedures can be implemented to avoid the pitfalls encountered by other failed firms.

In recent years, an alarming number of law firms of all sizes have failed. It is important to understand what happened with these firms and install certain procedures to avoid similar circumstances. These procedures should help any firm to thrive in the near-term and long-term future.

Client Service and Marketing

Each member of a firm needs to value its clients. When a law firm’s clients are successful, the firm will benefit as well. Lawyers must interact with clients in a manner that their clients will understand. Support personnel need to also understand and appreciate the value of satisfied clients. In many cases, referrals are a very significant source of future business. A firm can have an engaging website and be very active on social media, but without good referrals, future business and success is uncertain.

Attracting new clients can be equally as important as retaining current clients and many firms do not spend on properly marketing their businesses to distinguish themselves from their competition. However, in today’s environment, more law firm leaders are recognizing the importance of properly developing new business.

It is good practice to review your firm’s client base regularly to determine how much each client contributes to the firm’s overall revenue. The leadership should consider what will happen to the firm if one client that represents more than 20% of the firm’s revenue decides to leave the firm. It is good practice, therefore, to try to keep a varied client mix so that the actions of no one client will cripple the firm.

Appropriate Technology

Attorneys and support personnel must respond to clients’ inquiries in a timely fashion. In today’s environment, many law firms are inundated with emails. The best way to address these emails is to purchase appropriate software applications and to train everyone regularly to maximize the benefits of those applications.

Firms must be flexible and willing to pivot. To use the excuse “we’ve always done it this way,” is a recipe for disaster. There may be a price tag to continually monitor the firm’s technological tools, but in the long run, this tactic will more than pay for itself.

Accounting and Finance

Finance is critical to every law firm. Since law firms are privately owned entities, they are subject to different rules and procedures than publicly held operations. Firms are managed predominantly on a cash or modified cash basis accounting platform and are required to segregate any cash receipts which are considered retainers and/or funds which are not yet earned.

Law firm leaders should review all aspects of a firm’s financial position. With the review, processes should be reexamined and employed to guard against any embezzlement. According to the US Chamber of Commerce, in 2019, 75% of US employees at least once from an employer. Reviewing profit and loss statements should be done on a monthly basis without fail and time entries must be recorded in a timely fashion. Though rarely compiled in law firms, an annual forecast is highly recommended. Most attorneys who find themselves in a management role have never been trained in finance or accounting, but they can learn the basics and make sure that they have qualified professionals to assist them.

Law firms succeed only if they are willing to change.


Every employee is a needed member of the firm’s team and needs to be respected for the job that he or she performs. Approaching the management of employees with this mindset will increase employee engagement and the firm’s net profit.

Effective leaders understand that people will have differences of opinion, and it is always a good idea to listen to them. Unfortunately, many people who find themselves in leadership positions have never participated in any management or leadership training. For this reason, it is good business practice to encourage training and offer CLE credits to lawyers who are in management. Members of firm management are subject to “The Peter Principle”—people tend to rise to their level of incompetence. Employees are generally promoted based on their success in previous jobs until they reach a level at which they are no longer competent. For this reason, law firm leaders need to have a good grasp of what they do not know and hire or consult with professionals who can add value to their business.

Good leadership will result in valuable employees staying with the firm and potentially valuable employees joining the firm. Leaders should include an analysis of why valuable employees leave the firm as part of the exit process. In any professional services firm, talent is the product being sold. When losing any talent, the integrity of the product changes.


As mentioned before, leaders should never think or say, “we’ve always done it this way.” One thing is certain: change is inevitable. Law firms succeed only if they are willing to change. Two current examples include accepting alternative legal service providers and allowing all employees a hybrid work model, where working remotely will be routine.

Workforce diversity presents another challenge for change. Leaders need to know and understand their own biases. Everyone has them. If leaders can recognize their biases, they can make significant strategic changes to improve their firms.


Failure is not new to law firms, but procedures can be implemented to avoid the pitfalls encountered by other failed firms. There are ways to retain current clients and market for new clients. Procedures can be established to ensure the best use of technology as well as to guard against finance and accounting mistakes. A shift in the mindset of management, toward its employees and inevitable change, can increase employee engagement and help to improve the firm. Constant training for leadership and the employees is a vital tool for combatting failure.

Written by CARET Legal partner, Gail Ruopp. Gail Ruopp has acquired more than 25 years of professional experience in senior law firm management, initiating best practices in administrative operations, including: financials, accounting, lateral recruiting, personnel, day-to-day operations, systems management, and firm marketing.

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