Do you want to increase your firm’s profits by 16%?
Is everyone in your firm commercially aware?
Solicitors have always focused on providing clients with the services they want rather than thinking about whether they have maximised their own return from the firm. The most profitable firms are clearly providing clients with the service they want while at the same time having a clear understanding of how they are going to maximise profits.
Do you want to carry on as you are or do you want 2012 to be the start of improving fortunes?
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It is interesting to ask partners and fee earners the following questions and to listen to the answers they provide:-
- What is the long term aim of your firm?
- Who is responsible for the financial management of your firm and what do they do?
- What financial information is produced, when do you look at it and for what purpose?
- How are commercial skills developed within the firm?
- Tell me how successful your firm is compared with similar sized firms with regard to levels of profitability and cash flow?
- Where do you think you lose the most profit in the work that you do?
In my experience, few people can answer the questions properly and it quickly highlights the likely problems which a firm might face.
Using education to raise awareness and encourage change
It may be important to organise some financial education for your partners and fee earners so that they are more confident and skilled in financial management. Everyone needs to undertake CPD each year but perhaps more of it should be focused on improving financial outcomes.
If you ask solicitors about what needs to be done to improve the results of the firm then everyone will have their own view and believe that their response is the best answer. If this is done as part of a training exercise then perhaps there can be a more sophisticated conversation around the range of things which could be done before some collective agreement is made as to what needs to be done. It is not surprising that when everyone works together to achieve a common goal there is more likely to be an improvement in performance than if everyone focuses on just their individual issues.
Possible outcomes if education helps
Given that fee earners generate fees and that the costs of firms are heavily fixed, it is important to focus on how fee earners can increase the fees that they generate. A 1% increase in fees generated need not result in any cost changes and so this would generate a 4% increase in profits to the average firm which is trading with a 25% net profit margin.
A 2% increase in time capture, together with a 2% reduction in write offs on the back of some training would increase profits by 16% which is a considerable change. My recent experience is that in fact time capture can often be increased by 10-20% and write offs can be reduced by 5-10% by focusing on these processes in training sessions.
No firm stands still. Changing nothing actually means sliding backwards. Do you want 2012 to be the start of improving fortunes for the better? If so, get people motivated to do those things which will improve profitability. This can be achieved through the use of carrots or sticks. Carrots can include bonus systems which reward improvements but maybe the first step is some proper education.