Law firm profitability: are you winning the profit game?

Managing business profit seems to be a fairly obvious strategy and it might be assumed that most law firms and their managing partners would understand the process of improving cash-flow. With the correct information, gathered from an assessment of the billing, chargeable hours and fee collection of the business, profit can be improved by an overhaul of the system and the performance of individual partners or departments as a whole.

To a certain extent, this is true and no managing partner can ignore the straight arithmetic of the profit game. However, to leave it at this would be to ignore the real complexities of profitability and to miss out on the potential strategies for improving the business in the short and long term.

Never was this so true as now, when we face a difficult economic climate in which there is still considerable uncertainty over future conditions. In such an environment, law firms look to cut costs, reduce overheads and buckle down the hatches in wait for better times ahead. However, if there is one resounding point that comes across in the following articles it is to advise caution before setting about the cutbacks. In apparent contradiction to the actions of law firms reported in this and past issues of Managing Partner, nearly all our authors refute the efficacy of the cost-cutting strategy arguing that it rarely improves profitability and is often the result of a panicking law firm responding to problems with short-term solutions.

In uncertain times, law firms must look to the long term, the whole performance and culture of the business and to how they can drive their people to improve company profits both in the short and long term. From this perspective, I hope you agree that this summer issue should leave you with plenty to think about for the future and hopefully, you'll find it a positive help in your planning to survive any tough times ahead.

Another important area raised in this issue of Managing Partner is the use of e-mails in business. The past year has been one in which numerous businesses, including law firms, have fallen foul of e-mail use and misuse. E-mails have so quickly become the daily currency of business that an effective legal and business framework has seemed to lag in the follow-up. Hopefully, this article will help to clarify some of the issues that every law firm should be taking to its heart.As ever, I hope you enjoy this issue and please do let me know if you have any comments or ideas at cpoynton@ark-group.com.

Caroline Poynton, Editor

Features

Developing new clients profitably Free
Leading practices are realising new opportunities for developing and retaining business profitably, and maximising ROI (Return on Investment) on their marketing. Patrick Rea of Rea-TMA Marketing Group, Accredited Consultants, Chartered Institute of Marketing, describes the advanced ‘Sales Process’ strategy that helps to eliminate the imprecision and uncertainties of much practice development activity.

How to improve your marketing IQ: don't spend more – just spend it more intelligently Free
A recent survey revealed some interesting findings in regard to law firm Marketing. The report, entitled ‘Improving your marketing IQ’, argued that mid-sized firms could be wasting as much as £80 million on marketing every year with mediocre standards of creativity, a lack of original thinking and a failure to use intellectual capital. Victoria Ash and and Paul Griffith, founding partners of The Marketing Team, assess the results and provide some advice on how law firms can use the findings for a better future in legal marketing activity.

E-mail: Retention, disposal and dealing with misuse Free
The use of e-mail has become so popular that it is used widely across all types of business. All who use it applaud the speed and efficiency gained by its use and the e-mail has become an integral part of day-to-day business. However, law firms, just as any other business, are susceptible to the risks attendant upon its misuse. We need only think back to the recent case of Weil Gotshal & Manges, where it fell foul of e-mail communication in its handling of the bankruptcy of Global Crossing, to understand the potential risks. Stephen Mason, barrister and chairman of Pario Communications, examines the legal requirements and considerations that all businesses must employ if e-mail is to continue to be such a central component of everyday business.

Profit motive: a case study about positive change Free
David Maister’s book: Practice What You Preach, has become an international bestseller that has driven ideas among law firm managers. Gerald Riskin, principal at Edge International, takes Maister’s book as a basis for his own case study, in which he uses a client firm to assess law firms’ motivation for change and profit.

Billing stories from the front line: Free
On the surface, billing might appear to be a fairly straight-forward process. There are only so many options when it comes to choosing a billing system and once you’ve agreed your fees, the next steps would seem fairly obvious. Simon Rous, managing partner at Bevan Ashford, Exeter, uses a typical example of a client meeting to demonstrate the real intricacies of effective billing and highlights the issues you should be considering to ensure a long-term productive relationship with your most valuable clients.

Financial success in a tough economy: Free
So, we’ve heard the theory, what about the practice? James Boyd, finance director at Cobbetts, gives a personal insight into its profitability drive, describing the strategy employed to improve profitability over a three-year period. Here, at the end of ‘Year One’, James considers the firm’s development so far, where it has focused its efforts and what results it has enjoyed over the course of the year. He uses that experience to give a glimpse into the firm’s next step – profitability through Year’s Two and Three.

Managing law firm profitability: effective strategies for a competitive market Free
Managing profitability is a major strategic challenge facing law firms today with many recognising that they must improve profitability if they are to remain competitive. Identifying the areas in which profitability could be improved and what would need to change is one thing: executing it is quite another. David Temporal, a partner at Temporal Consulting, explores some perspectives on this issue and assesses what law firms need to consider if they are to be successful in the long term.

Turnover versus profitability: balancing the scales of success Free
Profitability is a term easily bandied about by law firms reaping the rewards of economic boom periods. However, as soon as things take a turn for the worse and the competition for profit intensifies, lawyers find themselves in a difficult environment, one in which the success of the business demands a careful balancing act. Michael Simmons, a partner at Finers Stephens Innocent, considers the profitability minefield and what areas lawyers must tackle to enjoy a more prosperous future.

Risk managment: from theory to practice Free
In the April issue of Managing Partner, our authors raised some important issues on the area of risk management. In this article, Bill Kirby, sales and marketing director at Axxia Systems, continues the debate with an assessment of what steps law firms should take once they've agreed on their general risk management strategy. In particular, he focuses on the work of the Law Society in its efforts to introduce minimum standards of operation across law firms.