Knowsley Management Services
Legal Practice Management Consultants
I hope this November edition of KMS “Robservations” finds you in good health and prospering…
I have again briefly covered for you a few more issues that I observe impacting lawyers in small-medium firms in Australia and New Zealand…
I trust you continue to find the content of interest, and value to you in your practice…
The strongest thread from our consulting in the past month has been related to the incredible variety of small-medium practices, their particular approaches to selecting work, and their credit terms.
Firms that look quite similar from the outside almost always turn out to be hugely different when viewed more closely.
Even when firms do the same types of work as others, they can have very different views on credit arrangements.
Some firms in Family Law for example, will not (at least intentionally) do “pay at the end” work. Others are perfectly happy to.
Some firms will not do Contested Estates work, because they consider it ties up too much working capital with payment (maybe) at the end. Some are quite happy to do the work and be paid at the end if successful. Others are happy to do the work, but only on a “pay as you go” basis.
Assuming markets and business development efforts are similar, unwillingness to take on pay at the end work will reduce work volume, and many firms are happy with that scenario.
Few firms doing a significant volume of Medical Negligence claims can achieve progressive payment, with really big matters sometimes spanning a decade or more. This obviously places considerable pressure on working capital requirements with cash flow, inwards at least, being very lumpy indeed.
I’m sure some readers will be thinking that of course you can’t do Contested Estates work on a pay as you go basis, because after all most clients legitimately seeking a greater provision from an estate will have limited means for financing a legal matter of this type.
Nevertheless, there are firms that have a very healthy practice in this area, despite doing little or no “pay if successful” matters.
It’s all about how much working capital you are prepared to have tied up to achieve your business goals, and how you go about managing and controlling that.
I’ve covered another aspect of this management challenge below under the “Lies etc.” heading.
Just sad, or plain scary? You decide. The Law Society of British Columbia will not credit lawyers for CPD for education in marketing (or incidentally, lawyer wellness and profit maximisation courses).
Appropriately, many Law Societies throughout the world have lawyer wellness issues very high on their priorities, and, without wishing to be flippant, my concern is that if lawyers don’t get better at marketing and profit improvement they will in these increasingly competitive times face even greater pressure on the “wellness” side!
The approach taken by CPD authorities in Australasia seems much more aware and sensible. Lawyers make their own judgments about what learning is in their best interests as a lawyer in terms of their professional development and practise of the law.
There are a few subjects where a modest minimum level of CPD is mandatory in each reporting period (Ethics and Professional Responsibility, Practice Management and Business Skills, and Professional Skills for example) but otherwise lawyers are given the freedom to choose they deserve, as honest, trusted, professionals.
How ironic that in some jurisdictions some Practice Management and Business Skills ongoing education is mandatory every year, and in others key aspects like marketing and profit improvement are specifically excluded from being given credit.
The bottom line…the pace of change may well be rapid, but it is long way from uniform!
A. Pricing is a critical factor in law firm profitability…
B. Lawyers are almost universally poorly trained in pricing, and I still encounter senior Principals who do not consider upskilling lawyers in pricing to be even close to making the firm’s priority list…
C. The lawyers are the very people in most small-medium practices who have all the pricing discussions with clients (assuming useful discussions happen at all)…
This issue’s pricing tip…Why “cost-plus” pricing has been so popular for lawyers.
Cost-plus pricing is very simple to use, and if you have, and promptly carry out, enough work for the hours you used in your calculations you will almost certainly make a profit.
Clearly the method focusses on you and your firm, your expenses etc., and prices thus arrived at bear no meaningful relationship with the value purchaser clients perceive they get.
Again it leaves significant fees on the table in many, many, engagements annually, which means that it is not very useful if you are trying to improve your profit, even partly, via the pricing route.
So why has it been used so much by so many lawyers for so long?
My view is that the causes are rooted deeply in a combination of its simplicity, and the fear of many lawyers of being alleged to have over-charged.
Better, I think they rationalised, to have a simple system that will guarantee a reasonable profit margin if you have enough work, and keep your head well down in the trenches, below the line of fire of various regulatory annoyances!
Throw in a big dash of feeling too busy to learn new skills, and you have the basic and long-standing trap and limitation of hourly rates.
In each issue I look to introduce comment about a management issue that revolves around “the numbers”.
The short item this issue is on taking care not to jump to conclusions on any of the numbers.
A firm’s Debtors are down…surely that’s a good thing? More cash in the tin, so to speak.
Well maybe, if the firm did bill normally or better recently, and collected strongly and early.
Well maybe, if the firm did not bill normally recently, and this was a deliberate decision.
However, if the firm did not bill what it could have, and this was the result of failure of team members to adhere to a sound business process, then Debtor balances being down will almost certainly mean unbilled work is up, and cash flow has been/will be impacted negatively.
Lawyers generally hate process when it applies to management and their role in management, despite understanding fully why proper process is absolutely critical in many areas of life and business…think Workplace Relations and dismissal or performance improvement processes as just one good example. You might come up with the right answer, but failing to follow proper process can mean you strike out!
A classic example of failing to observe an excellent process, and being focussed on the wrong things later, is when serious cash flow problems arise.
Almost always this is a result of past process problems, sometimes long past.
The rectification must involve the two key facets of getting through the present crisis, and immediately returning to effective processes to minimise the chances of similar conditions being created again somewhere in the future, and often not too far away!
In every firm there is some delay between the effective application of your resources being invested in today, and the optimal flow of cash as a result of those efforts today.
The longer the delay is the harder it is to determine that the cause of the problem was deeply rooted in failure to use resources properly in following process some considerable time earlier.
The opportunity to get better at following process on past operations has long gone when the cash ramifications finally become very serious.
The bottom line…If firms don’t jump to conclusions on numbers, and do focus on proper carrying out of processes, responses of management to the real meaning of each of the numbers are much more likely to be appropriate, and even useful!
Moving about the Profession over the past month I’ve encountered a number of Principals in firms expressing a gut-feel that their firms are not as profitable as they should be for all their effort and investment.
Of course, this has been a fairly common refrain since I started consulting 29 years ago in 1988, but over the last two or three years it seemed to be a little drowned out by a greater concern about the rapidity of change, new types of competition, and the overwhelming focus on the need for innovation.
The issues of agility in adapting to changes, and the real need to innovate, are of course important for your future, but they should never obscure the imperative to operate wisely and effectively in the short term too.
Firms that allow poor business practices to develop while management is focussed on the big picture will inevitably run headlong into a cash flow problem that will depress energy and innovation, and rob the firm of necessary funds for investment in long term strategic gains.
The entry-level service that we offer to help firms quickly identify problem areas is the KMSProfitGapAnalysis™.
The info on KMSProfitGap Analysis is on our website at this link…and standard fee AUD$2,885 plus GST is set out there.
There is no further obligation or pressure to use us to assist beyond the provision of that advice.
To get the ball rolling please just email me and let me have your name and phone contact details, and preferred contact times, and I’ll get back to you promptly.
Since last issue we’ve helped firms with potential terminations, assisted a firm with valuing a practice with a new Equity Principal joining the team, assisted with team member performance issues, conducted more in-house training on the Business of Law, spoken again to a Law Society Mandatory CPD sessions on the tight links between Pricing, Marketing, Effectiveness and Profitability, and on Career Development, advised further on Practice Management Software and discussed development issues with technical staff in providers with a view to having system enhancements delivered to all users, provided practical ideas for draft content to numerous firms, assisted with reviews of SEO efforts, completed over 100 KMSFeedBacks for October for individual lawyers and many support staff, reviewed more than fifty draft items of content sent by client firms, mentored Principals, assisted firms with extracting better information from their PMS, and conducted reviews of firm’s marketing and advised on improved focus.
If some of this content has been of interest and value for you in your practice, you will find other related content here…
My LinkedIn posts…
KMSWebsite includes an archive of all earlier newsletters…including all issues of “Robservations” and KMSProfitPower Tips back to 1996.
My LinkedIn Discussion Group… Excellent Management In The Small Law Firm