Increase Profitability in a Law Firm by Improving Operations

It’s important to remember that improving operations, no matter how seemingly minor the change is, will have a positive impact on the firm’s profitability and overall health.

In most law practices, a qualified professional can predict the costs associated with operating a firm relatively accurately. Most expenses are easily forecasted including salaries, facilities and technology. However, revenue is a bit more difficult to predict. Maintaining and attracting clients is key to increasing revenue. Revenue is also associated with time entry, realization, and collections. Both revenue and expenses can be improved by optimizing operations.

Tracking Time

No matter the size of the law firm, the very first thing that should be addressed is entering time—this includes billable and non-billable hours. Most law firms enter their time to determine how much to charge a client for services rendered, whether the client is charged a flat fee or hourly rate. Many studies have shown a correlation between entering time contemporaneously versus entering it at the end of the day, week or, in too many cases, month.

Recent studies conclude that timekeepers are recording a mere one-third of the time they work, with only 80% of that recorded time applied to invoices. Collection rates vary, but they usually average only 85% as well. These statistics vary by firm, but each firm should determine how best to improve these estimated percentages.

Current software applications allow for time to be entered at any time on any device (including iPhones, Androids, and iPads). As more and more attorneys are working remotely, software applications that are “in the cloud” are becoming more common and necessary.

Many applications include timers that can be set to record the billing time required for each legal service provided. These timers should be used. If the timekeeper forgets to turn off the timer after each provided service, the entry of the time can still be edited. The big advantage of using timers is that many time entries are entered which would otherwise be forgotten. Sophisticated practice management applications, like CARET Legal, boast features, like default narratives and pre-billing tools that can also help streamline the capturing and review of time entries.

Continue Training

Employees should be continually trained on how to utilize existing software applications. Everyone should be entering their own time directly into the firm’s time & billing system. Recent studies indicate approximately 65% of software features are never used. If a firm can increase usage to 50% of an application, that increase in productivity automatically increases net income. On average, every dollar saved in operations equates to four dollars received in gross revenue!

By continually training employees, everyone is more engaged in the business entity. Employee engagement has historically been ignored. Recent studies indicate that over 70% of employees in the United States are disengaged. Engaging employees has a direct effect on profitability. Most people, when they come to work, want to do a job and do it effectively. They do not want to come to work just to earn a paycheck.

In today’s environment, training and engaging employees is more critical than in the past, because so many people are working remotely. Keeping employees engaged and properly trained requires a continual effort—it cannot be “one and you’re done.” The learning of available software applications needs to be put into use for doing daily tasks. A top-down approach is definitely important. When senior management embraces available technology, members of the team will follow suit. Learning software applications needs to be a priority.

It is also critical that employees are comfortable offering opinions and suggestions to management. Active participation by everyone is necessary, and employees have to learn to trust one another. It will probably take some time to initiate this type of team mentality, and it will require an investment in time to maintain such an atmosphere. To further promote the process, it is important for management to praise publicly and criticize privately. Initiating and maintaining a collaborative environment will require patience and perseverance from management; as stressed earlier, it will take some time for the team to evolve. But every initiative begins with a first step. And each law firm is unique. That being said, the first step to building the firm into an engaged efficient team should always be to communicate accurately and continually to all members of the firm.

Reach Out to Business Partners and Clients

Reaching out to various business partners is also a key initial step. Determining what resources they have to help the firm thrive is critical. Many attorneys are reluctant to ask their clients for corrective criticism, but it may make sense for a member of the firm (not the attorney or group that worked on the client’s matter) to interview the client for feedback. By interviewing clients, the firm can improve its operations and simultaneously engage the current client base, which is the major source of future business.

Identifying areas of opportunity (for improvement) is often the first step in achieving operational excellence. While it may seem like a major overhaul is necessary for drastic results, it’s important to remember that improving operations, no matter how seemingly minor the change is, will have a positive impact on the firm’s profitability and overall health.

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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