How to Manage a Small Law Firm: The Complete Guide

Mar 24, 2020

Hi, I’m Patrick Carver / CEO, Constellation Marketing

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So, you’ve just started a small law firm. Well done! However, chances are that if you’re reading this, it’s recently dawned on you that the key to managing a small law firm is not just being a great lawyer, but also being a great business owner.

From hiring the right staff members to having efficient financial processes in motion, there’s a lot that goes into managing a small law firm beyond the basics of working directly with your clients. This complete guide to managing a small law firm will guide you through everything you need to know to get started.

It’s All About Profitability!

Like with any business, knowing how to manage a small law firm hinges on a core focus of profitability. This should be the guiding principle for all of the actions you take in the categories below.

Know Your Expenses Inside and Out

Establishing and maintaining a profitable law firm starts with knowing your expenses, and it’s not as complicated as it sounds. At its simplest, all you need is a spreadsheet, a commitment to consistently check your past bank statements, and honesty with yourself about the actual cost of the operations of your law practice.

If you want to go beyond the basics, you can instead take advantage of technology that takes care of these steps for you. Quickbooks Online and Xero are two great options for this, and each is relatively inexpensive, making this a worthy investment in exchange for more time with your clients.

No matter how you choose to keep track of your firm’s expenses, it is essential to account for both the recurring items such as rent and internet and the more variable expenses such as insurance, office supplies, and anything else you pay for to stay in business. It may be tedious at first, but getting this process right from the start can help you keep track of the areas where you may be over-spending and keep an eye on long-term trends.

Choose a Revenue Target

Research indicates that setting specific goals can lead to greater achievements. Whether your goal is to simply make this year better than the last or to scale your small law firm to new heights, having a concrete number in mind is key.

A great way to outline your revenue target is to create a law firm business plan. This is a comprehensive document that describes your firm and its short-term and long-term goals, as well as its services, marketing strategy, budget, financial plan, and an overview of its overall organization and management (including compensation structures for your partners and associate lawyers). With each of these details set in stone, you’ll have a more concrete idea of where your revenue should ideally lie to not just get by but to thrive.

Remember: even if you love what you do, you’re running a business here. Set an annual revenue target and break it down into bite-sized goals to stay aware of your monthly, weekly, and hourly targets.

Work Diligently to Ensure You Meet It

After a year or two in business, many small law firms find themselves gaining more revenue than ever before without seeing that growth transfer over into profit. If this sounds familiar, you may need a monthly profit margin goal on top of your revenue target.

Here’s a simple way to calculate it: Revenue (All Sales) – Expenses (Salary, Overhead, Software, etc.) = Profit 

With this metric in mind, you’ll be able to think more strategically about your expenses and determine ways to lower them without reducing the quality of service you provide to your clients.

Don’t worry if you’ve never planned like this before — while it’s ideal to start your firm with a focus on profitability, it’s never too late to get started. It can feel tempting to give up at times, but one of the most important factors in sustaining a profitable law firm is simply striving for it. Check out our full guide to law firm profitability for more tips on how to achieve this.

Law Firm Accounting for Non-Accountants

When tasked with the responsibility to manage a law firm, you’re faced with the unfortunate reality that if you can’t get your bills out and collect money, you fail. You need a straightforward system that will give you the monthly insights you need to make smart financial decisions. You also need an efficient and effective method to collect your revenue from invoices.

Many law firms only consider whether they have money in the bank as a sign of success, but this isn’t sustainable if you want to grow predictably! The following tips can help set the foundation for how to manage a small law firm and ensure that the bills get paid.

Hire the Right People for the Job

If you aren’t money-savvy, don’t sweat it. There’s always someone out there who can help fill in the gaps of your skillset. In fact, it’s usually a good idea to hire a professional instead of handling these matters yourself. This will both free up your schedule to improve your client service and ensure that it’s done right from the get-go.

Ideally, you’ll want to hire someone who already does accounting for small law firms. Billing and invoicing for lawyers and law firms is a unique subspecialty in that it almost exclusively involves the exchange of time and services without a concrete product, so it helps to hire an established professional who understands how to navigate the nuance involved here.

Make Sure Their System Works for You

While the people you hire will often have their own work style and technology preferences, the bottom line is that your company is just that — yours. This means that the billing systems and processes they implement should align with your firm’s unique needs.

In other words, if you’re going to be using a new system or software, it shouldn’t be one you hate. Making sure everyone on your team is on board with a system that works for your law firm can help ensure a smoother workflow for all, saving precious time and energy that can then be funneled into working on your cases. Take a look at our guide to the best billing software for lawyers for more information on this.

Establish Collection Practices Early

Although no business owner wants to chase after a client for payment, it’s an inevitable part of managing a small law firm, so it pays to be prepared. Allowing invoices to remain unpaid indefinitely sets a precedent for both your staff and your clients, which can easily squander your firm’s growth before it even begins. Therefore, before your law firm really starts to take off, you should have a system in place to handle outstanding payments.

Don’t overthink this part! Focus first on establishing a system that works for you with people that match your style. The common theme for this article is to start something that can be good instead of perfect. Having the right financial systems in place will help you reach your profit target sooner. Over time, you can make adjustments and improvements.

Keep Your Momentum Going – Promoting Your Small Law Firm While Managing Growth

Building a law firm takes work – but having the right attitude and the right people around you can make the process easier – and even enjoyable! If you’re like most lawyers, you went through the arduous process of completing law school and passing the bar exam because you wanted to practice law, not because you wanted to run a business. The reality is that, while having top-rate skills as an attorney and networking amongst your peers will help you garner a great reputation, that reputation means little if potential clients can’t locate you.

Establishing a web presence that fits with your brand early on is crucial. After you’ve crafted a website and put out other marketing materials that effectively target your client market, your legal skills and the connections that you’ve made will make you more and more visible to potential clients.

After you’re hired by these clients and you’ve impressed them with your representation, the positive reviews they give your law firm will continue to boost traffic to your firm’s web site. In this way, you can create a sort of “positive-feedback loop” that creates momentum that allows you to grow your law firm quickly.

As your law firm grows, it will become important to prioritize efficiency – both in how you run your law firm and in how you go about promoting your law firm. Of course, as far as running your firm goes, it is vital to hire attorneys and support staff who share your vision and who you can trust. Developing a system of delegation and review that works for you and your employees will be especially crucial. Having good interpersonal relationships is a big part of making this whole process run smoothly.

If you, like many attorneys, initially practiced as a solo practitioner, you’re likely used to handing (almost) everything on your own. Growing accustomed to trusting others with the business you’ve worked hard to get off the ground can be a difficult process. However, by surrounding yourself with the right people, you give your firm the chance to obtain maximum profitability while serving your clients effectively.

At Constellation Marketing, we can assist your firm in developing and implementing a promotional strategy that is efficient and effective. We know how to harness the power of search engine optimization to create a web presence for your law firm that drives traffic to your website.

More traffic on your website means more leads and more eventual hires for your firm. More hires gives you more opportunities to demonstrate your legal acumen in representing your clients. More happy clients means more positive reviews, both on your website and via word-of-mouth. Harnessing and building on this momentum allows law firms to become successful, profitable, and fun to be a part of.

Running a law firm is complex, but it doesn’t have to be stressful. By choosing the right associate attorneys, the right support staff, the right systems, and the right marketing strategy for your law firm, you can ensure that you get to focus on what you came here to do – representing your clients effectively!

Law Firm Management & Operations

When you signed up for law school, you may have not known you were also signing up to become a business manager. You may be a well-regarded attorney in your area, but if you don’t work on your practice management acumen, it will be difficult for your firm to grow consistently. Here are a few key elements to keep in mind.

Invest in Your Team

As a managing partner or key-decision maker of a small law practice, it’s essential that you invest in yourself and your team members.

Your staff is the future of your firm, so you should hire people whose values and abilities reflect your vision for your small law firm. Keep in mind, however, that no matter how great your new hires may be, you should also strive to help them grow and learn alongside your company.

If you invest in the professional development and personal wellbeing of your associate lawyers, legal assistants, paralegals, and other office staff members, your firm will have a much greater chance of thriving long-term.

Depending on your needs and preferences, this might mean having regular one-on-one meetings with team members, funding training courses, promoting flexible scheduling, offering health insurance and other benefit programs, ensuring fair compensation, and more. Each of these should be outlined in your initial budget and revenue goal to ensure that your team’s well-being remains a priority from day one.

Streamline Your Systems

Inefficient processes and systems can cause significant hits to the revenue of your small law firm. Something as simple as your staff needing to hunt for answers to basic questions can easily cost your law firm thousands of dollars each year. With this in mind, it’s easy to see how efficient systems can steer your firm toward success.

The key to optimizing your firm’s efficiency? Technology. Your goal should be to automate and streamline as many manual or repetitive tasks as possible. This will allow your team to spend more time generating results for your clients, which will ultimately boost profitability and lead to better outcomes for all.

There are a variety of ways to streamline your systems, but several stand out in our experience collaborating with our clients. These include document management software, business intelligence software, and case management software. General project management tools, which allow employees to collaborate virtually, can also be useful in coordination with traditional project management best practices.

Clearly Communicate Processes to Staff Members

Improved efficiency only works when everyone involved is informed and on board. A great place to start with this is to create a well-organized manual for the systems, processes, and procedures of your law office.

This manual should clearly communicate how things should be done at the firm based on your business model and should include information on processes for client intake, document filing, collections, billing, time tracking, productivity, and anything else you may deem necessary to simplify the onboarding process for new team members and ensure that your firm operates as efficiently as possible.

Your manual should also include your firm’s standards for client service. Both you and your team members should be aware of your clients’ journeys, their wants and expectations from your firm, and how to deliver on those expectations. Setting a standard for client service will prevent your team from making assumptions and better ensure that they understand the problems that your clients are trying to solve.

Be sure to break the processes down into simple, numerical steps, using language that’s easy to understand for staff members of all skill sets in the company. It may also be a good idea to supplement these guides with flowcharts or screenshots to make the process easier to visualize.

Regularly Revisit & Revise Your Processes

A key component of knowing how to manage a small law firm effectively is the acknowledgment that improvement never stops. There is always room for growth, and keeping a flexible attitude at all stages of your firm’s journey is vital. This also means being ready to navigate unexpected change, whether positive or negative.

Once you have everything laid out and communicated to your staff members, keep an eye on your progress. Ask your staff members to follow the process once you’ve shared it with them and invite them to share their feedback, then use that feedback to modify or clarify the systems or processes at hand. Later, as your firm continues to grow and evolve, be sure to revisit your processes and make revisions as necessary. This should ideally be done at least once each quarter.

No matter where you lie on the spectrum of lawyer vs entrepreneur, it’s essential that you invest in the resources necessary to properly manage your law firm. It would be a lie to say it’s easy or straightforward. We’ve synthesized some of the most common practices and shared our own experience from working with over 50 law firms, but every practice is different.

The truth is that it’s mostly trial and error. You can use these resources as a starting point, and maybe you will be interested in getting more Marketing Ideas for your Law Firm, but it’s vital that you continue to test and improve over time. The reality is that no one has all the answers. Even that hotshot across town will have their fair share of failures. Stay resilient and you’ll reach a place where you can run the practice of your dreams!

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