We are often asked to highlight some of the key strategies we recommend for law firms that endeavor to improve cash flow and profits per partner. This article provides a high-level approach to strategic planning – and how our law firm consulting solutions simplify this process.
A key to successful strategic planning is to recognize that each firm is a unique business. Every law firm is comprised of a unique group of lawyers that form a distinct culture. Successful law firm consulting solutions improve cash flow and profits per partner by focusing on five key areas of the business:
If you focus on these five areas of your law firm, you can improve profits per partner. While our law firm consulting strategies are unique to each client, the five drivers of law firm value: productivity, compensation, liquidity, growth, and analytics should be the core of your law firm’s strategic plan.
Productivity: Establishing law firm culture and baseline profitability
Productivity goals set the tone for a law firm’s culture, profits per partner, and associate compensation strategy. We leverage the following concepts to help law firms define the appropriate productivity goals for their lawyers:
- Define the work/life balance you intend to provide associate attorneys and support staff,
- Develop a clear understanding of the range of partner profits that are generated by the productivity goals under consideration,
- Develop a talent-acquisition strategy that enables a law firm to successfully hire new lawyers at the optimal time. Of primary importance is the firm’s ability to preserve the work/life balance of associates, while also fulfilling growing client demand.
When strategic planning, realize that your law firm is comprised of a unique group of people. Consequently, boilerplate models for productivity and profitability won’t work.
Several of our law firm consulting clients generate similar PPP with vastly different associate-per-partner ratios and billable hour mandates. Both firms have low rates of turnover, and are financially successful running very different business models.
Law firm consulting can help you define optimal productivity goals and develop a strategic plan that will successfully provide your lawyers with the work/life balance you desire, preserve a positive culture, and improve profits per partner.
Law Firm Compensation: Using money and time to achieve performance
Setting productivity goals and defining the work/life balance for your lawyers are just the initial steps. Without an economic incentive to perform in a manner that achieves your law firm’s financial goals, productivity mandates will be short-lived and rarely achieved.
A key to improving profits per partner is to develop a compensation plan that effectively uses your firm’s money and time to elicit the desired performance from each of your lawyers. Using money is important, but long-term success is rarely achieved without an appropriate level of motivation and communication.
Our law firm consulting strategies are different for every client. Nevertheless, some common elements of an effective law firm compensation strategy are to:
- Clearly communicate a range of compensation levels each lawyer can achieve for various levels of performance.
- Create a continuous feedback loop, letting associates know when they are achieving their goals and where they are falling short.
- Develop a continuous feedback loop to solicit feedback from your associates in an effort to determine if they are adequately motivated (financially, and non-financially).
- Time incentive compensation payments to coincide with the achievement of your law firm’s financial goals. Every law firm is unique. Annual bonuses are not always the answer.
Law firm consulting can help you develop compensation plans that are intrinsically tied to your law firm’s financial goals. However, some firms hesitate (preferring not to “rock the boat”). Instead, they stick with compensation plans that fail to drive the performance needed to achieve the firm’s financial goals.
If this mindset is prevalent within your law firm, there are solutions that resolve this dilemma. A quality law firm consulting solution will identify the optimal time to unveil a new compensation plan, develop a communication strategy to elicit the desired level of performance from your lawyers, and develop a quality feedback loop to identify your new compensation plan’s impact on employee morale, law firm culture, and associate productivity.
The sooner your firm beings to adopt a compensation strategy that effectively incentivizes, motivates, and communicates with team members, the sooner cash flow will begin to improve.
Law Firm Liquidity: Every law firm requires a unique approach
Most profitable law firms have inefficiencies in their cash cycle. Money is simply “lost in the system”. Money that could be devoted to compensation is lost every single day.
In order to maximize partner profits, law firms should analyze their cash cycle in an effort to understand how their unique set of clients, internal management functions, and law firm strategy impacts liquidity.
Despite the fact that law firm liquidity solutions vary from firm to firm, there are common attributes that typically drive the cash cycle: Among these are the:
- Financial profile of clients
- Volume of clients
- Average monthly billings per case
- Retainer size
- Invoicing strategy & execution
- Quality of the law firm accounting and financial management function
- A/P and vendor-level strategy
- Compensation strategy
- Collection strategy for delinquent accounts
There are simply so many drivers of law firm liquidity, that no single strategy is right for every firm. Law firm consulting can help your firm get a clear understating of how the above-referenced parameters are impacting liquidity. A quality strategic plan will define a succinct set of strategies that will enhance and monitor the cash cycle.
A reality of law firm management is that the average business can create significant cash flow (most of which can be devoted to partner compensation) from simply “cleaning-up” inefficiencies in the cash cycle.
But don’t be deceived. Some law firms believe that inefficiencies in the cash cycle simply cause cash to hit the bank account later, rather than sooner. That is typically not the case. Many of the liquidity drivers outlined above result in certain cash flows never being realized. Yes, you can improve profits per partner by just optimizing your law firm’s cash cycle.
Law Firm Growth: Using price, marketing, people & real estate to improve profits per partner
Growth is perhaps the broadest area in law firm consulting. A sophisticated growth strategy takes into consideration a firm’s:
- Pricing, billing rates, and AFA’s
- Revenue PPP goals for future periods
- Marketing strategy
- Partner acquisition
- Growth in associate headcount and support staff
- Real estate strategy
Growth is not simply a matter of defining revenue and profit goals for the firm. Understanding how pricing, fee structures, marketing, talent acquisition, and real estate can be used to drive law firm growth is a key to improving profits per partner.
- Is your pricing strategy or fee structures retarding revenue growth?
- Is your marketing budget devoted to the highest ROI endeavors?
- Is your marketing budget adequate to support your expectations for revenue growth & PPP?
- How does your compensation and PPP growth strategy impact partner acquisition?
- When is the optimal time to hire new associates?
- How does your real estate strategy impact your ability to grow the business and increase profits per partner?
Your unique collection of talent, interpersonal relationships, culture, and internal economics define the business drivers that are best suited to drive growth. Law firm consulting uncovers the key growth drivers within your existing business, and outlines a succinct portfolio of strategies that will achieve your firm’s goals for growth and partner compensation.
Analytics: Improving profits per partner & minimizing stress
A quality business analytics package can keep all of the above-referenced strategic planning initiatives in-check. We develop and implement analytics as part of our law firm consulting services in an effort to:
- Monitor & assess whether the firm’s productivity, liquidity, growth, and financial goals are being achieved
- Highlight business issues that need to be addressed
- Minimize financial and management “surprises” that often result in partners having to “fight fires”
- Free partners to spend more time on activities that create profit and value
Analytics are an absolute necessity for law firms that seek to improve profits per partner, maintain an effective culture, and preserve adequate liquidity. Without business intelligence, managing partners are “driving with one eye closed”.
A primary goal of our law firm consulting solutions is to simplify the realm of law firm management. Analytics help us achieve higher profits per partner, while allowing managing partners to enjoy a higher ROI on their time spent managing the business.
Law firm analytics should not require partners to spend more time reviewing reports and financial metrics. Rather, they should empower partners with better business insights and enhance their ability to spend time on endeavors that create value.
Law Firm Consulting: An efficient & powerful method for improving profits per partner
Bridgesphere’s law firm consulting solutions deliver strategies that are customized for our clients’ people, culture, and business. We utilize a sophisticated financial framework to diagnose & assess the multitude of business drivers discussed within this article. Our Law firm consulting services will enable your law firm to improve profitability and achieve the desired level of growth.
Every law firm is unique. Develop a strategic plan that emphasizes the strategic advantages of your business.
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