While perusing the ABA website recently, I came across an article that piqued my interest. The title: “Restoring Profitability” by Arthur Greene, a law firm consultant.

Best Law Practice Management Leads to Best Profits

A subheading read: “Skilled management has become the ‘price of admission’ for lawyers who want to remain competitive.” Further along, the author noted that “law firms with the best management practices return the highest profits.”

I had hoped to learn a few practice management tips that I could pass along to my lawyer coaching clients. First, the bad news. There was nothing particularly novel that this particular law practice management consultant had to say.

Now, the good news. What Greene did say reaffirmed my own master list of “best management practices.”  This list includes a handful of relatively simple rules. One hardly needs an MBA to be able to understand and apply them.

Over the past 30 years that I’ve been practicing and regularly interacting with lawyers, it has never ceased to amaze me that extremely capable lawyers can be so clueless when it comes to the business side of the practice.

And I don’t mean just solos and small firm lawyers. Big firm lawyers can be just as helpless. Today’s latest Exhibit A of that fact is the demise of Dewey & LeBoeuf.

Here are some of the items the author noted, with my own spin added.

Conduct a Revenue Capacity Analysis to Increase Profits

That’s fancy financial lingo for answering the basic question, “How much can I make?” We’ll keep this simple and assume that a lawyer bills by the hour. Let’s further assume all time is properly recorded, billed and paid. (Yes, I know these assumptions are unrealistic, but this is just an example.)

Pick the number of hours that you either want to bill per year or can realistically bill per year, given your practice area and market. Multiply that by your hourly rate.  For example, 1200 hours times $250 per hour yields $300,000 in revenue. Thus, if your annual revenue is that amount, you are operating at 100 percent of your revenue capacity.  $225,000 in revenue and the percentage is 75 percent of capacity.

Why is this information valuable? If you come up short of 100 percent, you can easily identify whether the issue is insufficient business (perhaps it’s time to enhance your marketing efforts), or problems in your billing process (more on that later).

Find Hidden Revenue Opportunities to Increase Profits

That’s fancy financial lingo for how do I get my arms around the problem of why I’m not operating at 100 percent. There are usually two suspects:

  • You are writing off too much time (your realization rate is under 100 percent) or
  • You are not collecting everything that you bill.

Recognize the Underlying Causes of Revenue Shortfalls to Increase Profits

The author writes that an increased focus on client expectations and satisfaction should go a long way to solve the two problems noted above.  I certainly agree. Of course, there is more that can be done. There’s plenty of material out there on the web already about how to improve realization rates and collections. The roadmap is not particularly complex.

What about Expenses?

Of course, revenue constitutes only one side of the ledger. You can’t forget expenses. For whatever reason, the article doesn’t touch upon these issues at all.

I would like to note, however, that the fundamentals of expense management are no more complicated than the above revenue enhancement suggestions.  For example, you don’t need a sophisticated economics background to determine whether one should office at home, in a virtual office or in a traditional office, or whether to create your own website or hire someone else to do it.

Why Do Lawyers Make Such Bad Law Practice Management People?

IMHO, it is because attorneys use bad judgment and poorly execute procedures when faced with business issues. But that answer sort of begs the question. The harder question to answer is why the lousy judgment and execution. To be quite frank, I wish I knew. It has never made sense to me.

Think about it.  In virtually every practice area, attorneys first must exercise good judgment to determine what tasks need to be done to resolve the legal issue at hand.  Then, they need to exercise discipline to properly execute these tasks. Lawyers seem to do that well. However, substitute “business” issue for “legal” issue and lawyers seem helpless.

Manage the Business the Same Way You Manage a File

Stop whining and making excuses. Managing the practice management end for your law firm is no more difficult than managing the legal issues of clients. It requires sound thinking and disciplined actions.  These are the stock and trade of any decent attorney — including you.

(photo: Success graphic from Shutterstock)