Growth Strategies For Law Firms
Are you are looking for growth strategies for law firms? You should first consider if it is the right time of year to grow your practice. Depending on the area of law that you practice, you will be busy at different times of the year. There are a variety of different practice areas which can include administrative law, bankruptcy’s litigation, commercial, family law, personal injury, tax law, and wills and estates.
In this article, we base our information on the 2019 Legal Trends Report.
If you are an insurance law firm, for example, your business ramps up quickly all the way until the month of May. It then drops through the summer and then ramps up again in October. Because of this, you should be able to look at how busy you are throughout the year. You can then plan the best time to do business development.
An insurance defense firm knows that they are going to be dependent upon business filed by personal injury lawyers or medical malpractice lawyers. So, there is certain work that they can undertake in January in terms of firm improvement. This is something that wouldn’t make sense to do in December. Because in that month they are going to be focused on billable work. And so, when are they going to spend their time on business development? Where are they going to spend their business improvement efforts? Should they focus on SEO or referrals? Law firm managers should think of these things if they want the company to grow.
Drawn Out Payment Cycles
Even though law firms might be busy at a very particular time of the year, their payment cycle is often drawn out. They don’t get paid right away. You need to compare what work your law firm has done and how long it takes clients to pay you. The average waiting time is almost two and a half months. Sometimes it’s a month and a half before a lawyer even bills their clients. For some law firms, it takes a long time to get their invoices out and then they’re waiting almost three months to get paid. That’s a problem from a cash flow point of view. Without money in the bank, it’s hard to take on business development.
Growth Strategies for Law Firms- Cash Flow Is King
You need to start figuring out a way to cut these getting paid waiting times down. You need to measure everything on a monthly basis and to look at your work in progress. Ask yourself if you are operating in a cadence that makes it easy for my clients to pay you. Are you keeping on top of that aging receivable? Are your clients out there waiting a long time to pay your firm? You will need to do something about this.
You also need to think about annual planning requirements for trust accounting. Now, we know not every lawyer uses trust accounting, but many lawyers do. Many provinces and states require both a monthly and annual trust check.
Solo and small law firms are more likely to be selected for trust account audits. Solo lawyers are also more likely to be included in these spot audits. And so, having a cadence around account reconciliation is important. It’s part of your monthly workflow to be prepared for those audits. We know in some jurisdictions that they give you a couple of day’s notice, but in other areas, it may be a surprise. And being prepared is important if you don’t want into trouble.
The Most Important Indication Of Growth Is Revenue
The number one definition of growth for law firms is revenue. You want more revenue. That’s what you believe to be a success when it comes to an outcome for your law firm. Our law firm also combines client satisfaction into the mix. If we are growing our revenue, but clients are not leaving 4-5 star reviews, there is a problem. You need to grow sales and still offer top quality service to clients.
Many lawyers say they are overworked and that’s going be difficult for them to grow their law firm. This means they need to stop operating in the same way and try something else.
So, if revenue is one of your two goals, how you go about getting that? Legal research company Clio said that about 20 percent of law firms fell into the growing category, meaning the law firm is growing their revenue. Another 20 percent fell into the shrinking category. And that meant that about 60 percent of law firms operate in a stable environment. This data was collected over a five-year period.
Growth Strategies for Law Firms- Utilization Rate
For the law firms that grew, their revenue growth basically doubled over five years. Whereas stable firms, as their name implies, were relatively flat in terms of revenue growth. They just maintain the status quo and manage risk to their company. Shrinking firms watched their revenue drop by about 54 percent. When you’re a high performer, the growth is monumental. But how do they get there is a question that we started asking ourselves.
Most lawyers are not utilizing most of the 8-hour workday. Lawyers are only billing about 2.5 hours a day. This is called by Clio the utilization rate. They’re only being utilized as a lawyer about 2.5 hours of their day. Once the bill was submitted to the client, they only collected about 1.7 hours out of an eight-hour day. That’s really bad performance and lawyers need to improve on this.
Law firms on average are trying to work around an eight-hour day. Law firms have a thirty-one percent utilization rate. When you break down by those cohorts, though, between growing stable and shrinking firms, there is a big difference. Growing firms are constantly improving their utilization rate.
Growth Strategies for Law Firms- Grow Your Utilization Rate
As a law firm manager, you need to continue to grow your utilization rate over time. You need to grow the number of billable hours you collect on per day. This will lead to significant changes in revenue. Don’t put out bills when you know you won’t get paid. Do quality legal work and make sure you collect money.
Read more: Old School Lawyers Are In Trouble
In conclusion, if you are looking for growth strategies for law firms, we suggest you look at the 2019 Legal Trend Report. If you want to learn more about law, visit our Youtube channel.