As we\u2019ve worked increasingly with law firms over the past few years, there are a number of commonalities that we\u2019ve found with many of the firms that we\u2019ve met and have worked with.\u00a0 Lawyers are really good at taking care of their clients.\u00a0 That\u2019s the bread and butter of their business and biz dev, and it\u2019s understandable.\u00a0 But what\u2019s missing is the \u201chome care\u201d that\u2019s needed to make sure that their firm is running efficiently and profitably.\u00a0 It\u2019s taking care of those things that resolves problems and issues before they become major stumbling blocks.\u00a0 Here are a few of the items that we\u2019ve encountered repeatedly that, if resolved, can keep minor annoyances from becoming major catastrophes.<\/p>\n
Staffing \u2013 <\/strong>This really falls into two areas \u2013 First, having enough people, and second, having the right people doing each job.\u00a0 It\u2019s a wonderful thing to be able to say that you run a lean and mean operation.\u00a0 Your staff is efficient and hard working.\u00a0 But if they are continually struggling to get the day to day work done, which results in overtime (whether you are paying them time and a half or not) you\u2019re risking unforced errors, and unneeded stress on your staff.\u00a0 Remember, it takes longer to fix an error (if you find it) than it does to do it right the first time.\u00a0 That doesn\u2019t help maintain a healthy work environment, or employee retention.<\/p>\n Also, having the right staff doing the right jobs is critical.\u00a0 Many firms that start out with one or two lawyers use their administrative assistant to do everything \u2013 that\u2019s a natural starting point.\u00a0 But as they grow, that admin is now doing their accounting without much more than a YouTube tutorial on QuickBooks.\u00a0 And we also see the opposite, where a CFO has the title of CFO\/Office Manager, and is even relegated to ordering office supplies.\u00a0 Not exactly productive for someone making well over $175,000 annually.<\/p>\n Financial Management:<\/strong> Many lawyers lack formal training in financial management, which can lead to challenges in budgeting, cash flow management, and understanding profitability. Many lawyers have CPA designations as well.\u00a0 Impressive \u2013 really.\u00a0 But it\u2019s likely that they haven\u2019t used their accounting knowledge for years, and the knowledge of operational finance that\u2019s needed is different from the day to day accounting knowledge that they have.\u00a0 The real risk is that when monthly financials are presented to management, they don\u2019t know what those reports are saying.\u00a0 The purpose of monthly financials is two-fold \u2013 Showing how the firm performed last month, but even more important, showing where changes need to be made to improve profitability or cash flow, both items that are critical to maintaining a healthy firm.\u00a0 Ineffective financial management can result in insidious problems arising with the firm that can eventually lead to survivability issues \u2013 cash flow problems, debt accumulation, and even bankruptcy.<\/p>\n Policy and Procedure Documentation \u2013 <\/strong>As firms grow, and responsibilities change, the original operations or procedure manual (if one ever existed at all) becomes largely irrelevant.\u00a0 All of the current procedures are in the minds and daily work of the staff and management.\u00a0 This creates significant risk for the firm and its ongoing operations.\u00a0 What if the Office Manager of 20 years walks out of the office on the day that payroll is due, and nobody else knows how to do it?\u00a0 We\u2019ve seen it happen.\u00a0 Documenting the basic procedures, with a list of who is responsible, is a thankless but necessary task to provide the most basic protections for any firm \u2013 regardless of size.<\/p>\n Client Satisfaction:<\/strong> Law firms rely heavily on client satisfaction for not only repeat business and referrals, but also for collection of invoices that they\u2019ve sent out. Do the lawyers in your firm really understand the importance of assuring customer satisfaction, and reaching out on a regular basis to make sure that the client is happy with their work?\u00a0 And just as important is that assuring the satisfaction of a client is critical to assuring that their invoices are going to be paid.\u00a0 Lawyers are not shy about working hard to meet the needs and desires of their clients, but those same law firms are uneasy about working hard to collect the money owed to them, thinking that it will be the impetus for a lawsuit for poor performance against them by the slow payer.<\/p>\n Compliance:<\/strong> Law firms must adhere to strict ethical and legal standards, both in their own operations and in representing clients.\u00a0 This means not just their handling of cases and working with clients and the lawyers on the other side of the matter.\u00a0 There are also strict rules about the handling of money that they receive as retainers or prepayments by their clients. \u00a0Their IOLTA account needs to be balanced and managed to the penny.\u00a0 Failure to comply with regulations and ethical guidelines can lead not only to damage to the firm’s reputation, but also to disciplinary actions and lawsuits.<\/p>\n Cybersecurity<\/strong>: Law firms handle sensitive client information, making them attractive targets for cyberattacks. Data breaches can result in compromised client confidentiality, loss of trust, and legal liabilities.\u00a0 So, not only does every business need to be cautious about being attacked by cyber criminals, but every law firm and their lawyers need to also protect the confidential information that they are holding for their clients as well.<\/p>\n Risk Management<\/strong>: Legal work inherently involves risks that are generally more intensive than a typical business.\u00a0 This includes the possibility of facing malpractice claims, encountering conflicts of interest, or breaching confidentiality. Effective risk management strategies, such as proper documentation and conflict checks, are essential for reducing and eliminating these risks.\u00a0 And, just as every business needs to have insurance to protect their businesses against loss, law firms also need to protect themselves from general liability losses, business interruption, cyber security breaches and employment actions such as discrimination, or Employer Practices Liability.<\/p>\n