Congratulations on starting your new law firm! You made a good decision. The nice thing about law firms as a business is they can be profitable quickly, especially if you keep your costs low. That’s good news. Keep these tips in mind and avoid the mistakes that many lawyers make when going out on their own, and you should be able to pay yourself a fat bonus at the end of the year.
Tip #1: Understand that you run a business.
As a lawyer your job is to advocate for your clients and understand the law. Perhaps you excel at drafting, research, or litigating. Put all that aside for a second. You are now running a business that has employees and money that needs to be managed.
I’m not kidding about this: pick up a copy of Small Business for Dummies. I did and still count it as one of the most critical business books I’ve read. Hire a good accountant and learn about your key financials, especially your Profit and Loss (Income) Statement and the supreme importance of cash flow. Understand that your firm, and your clients, will suffer if you don’t have a keen eye on your cash. Know what your cash position is every morning.
Tip #2: The better you run your business, the better you take care of your clients.
Let’s face it: due to the decorum inherent in the legal profession, words like “revenue” and “profit” are often shunned. But they shouldn’t be. Money should rather be a measure of how successfully you’re serving clients.
Think about it: the more efficiencies you build into your practice, the more you can focus on client work. If you can capture time without effort and taking time out of your day, if you can automatically generate routine documents, or if getting the bills out is an easy operation, you’re freeing up minutes a day and hours a year for client work.
Approaching your firm like a business will take you down the road toward process improvement and operational efficiency. And those are great habits to help you to avoid errors.
Tip #3: The longer you wait to invoice, the less you get paid.
If you invoice regularly on a monthly basis, your clients are more likely to pay on time and in full. The opposite is also true: the longer you wait between performing work and sending out the bills, the more your client is going to question your work and ask for a discount on the bill. It’s just human nature.
As a new law firm, you are going to have to get your marketing messaging straight, but beware the beautiful sirens of law firm marketing consultants. Usually the biggest problem in a law firm is not attracting new clients. The issue is collecting on the work they perform. A recent Georgetown law study indicated that most law firms only collect 71% of the time they bill.
Finding a workflow that allows you to get the bills out painlessly, whether through software or personnel or a business process as a service provider will greatly help your cash flow and the success of your business.
Tip #4: Accept credit card payment and automatic bank withdrawals.
Electronic payments are an attorney’s best friend, as they eliminate a very difficult aspect of running a business: collections.
Asking your clients to pay up an overdue invoice is a difficult and awkward conversation, especially considering that attorneys often help people through the most difficult episodes of their lives. Having a credit card or banking information stored securely with a PCI-compliant payment processor allows automatic debiting of accounts.
From an ethics standpoint, accepting credit cards and automatic bank withdrawals is kosher, provided you are up front with your clients in your engagement letter. There are rules about credit card processing with your trust accounts, so make sure you check your local bar rules first.
Tip #5: Build daily, quarterly, and annual meeting rhythms
To run a firm effectively, you need to be able to view it at arm’s length. Many firms make the mistake of not pulling themselves out of the day-to-day trench warfare involving judges, emergency client calls, and opposing counsel interruptions.
Take the time to see where you’re at and where you’re going, even if you’re a firm of one. If you have multiple people on staff, building a meeting rhythm is critical to keeping everyone on the same page. It is remarkably easy for businesses to degenerate into confusion and sloppiness if you do not do so. I recommend the following meetings:
Daily Standup: Keep this meeting to 5 minutes max by standing up. Everyone reports what they’re doing today and what obstacles are in their way. The leader then helps remove obstacles.
Quarterly and Annual Planning: It’s great to take the team offsite and review the latest quarter or year, discuss any HR issues or needs, chart strategy for the firm, make improvements to operations, and look at the operation from outside the glass. A great book to read on this subject is Scaling Up by Verne Harnish, which lists exercises for teams to work on at offsite meetings.