How to Manage a Small Law Firm

Mar 24, 2020 | Law Firms

Author:
Patrick Carver
Founder, Constellation Marketing

Like any business, managing a law firm can be challenging. You not only have to figure out how to acquire and retain clients, but also how to hire and manage staff, keep track of expenses and revenue, and ensure that everything is continually running smoothly, all while potentially bearing the brunt of the legal work yourself.

As a digital marketing firm primarily servicing new and small law firms, we’ve helped guide many of these firms toward success, while also bearing witness to their wins and losses outside of the marketing realm. What we’ve noticed is that in many cases, one of the determining factors of a law firm’s success is how it is managed.

Although a law firm should be treated as a business, your practice has unique needs that go far beyond the needs of a typical business. Even if you have extensive law or business knowledge, knowing how to combine these specializations will set you up for long-term success.

Here, we discuss some of the most important facets of law firm management so you can begin elevating your firm to new heights.

How to Start a Law Firm

 

  • • Starting Your Own Law Firm
  • • Law Firm Business Plan

Are you interested in starting your own law practice? Do you have questions about starting a firm? Unfortunately, most law schools teach you how to think like a lawyer, not how to start a law firm. So, you may not know where to start. The most important thing to remember, though, is starting a law firm is starting a business. If you are wondering if you should open and run your own law practice, you should ask if you are ready to own a business. Law practice is a business and profession at the same time – you must remember that.

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Namely, the skills that you need to run a successful business aren’t the same needed to practice law. They may help you in your business, but running a business requires solving different issues, which don’t go away as your business matures. There will always be new challenges when it comes to being a business owner.

According to Lawyerist, you should ask yourself the following three questions:

• Do I want to be involved in the entire running of the business?
• Am I committed to being a business owner and leader – not just an attorney?
• Do I consider the time I spend working on the business as important as my billable work?

If you answered yes to the above questions, take risks, have an entrepreneurial spirit, and have goals of building something that’s yours, you can and should start a law firm. There are many benefits to owning your own law firm like the ability to do more than practice law. Also, you’ll be able to better control what clients you want to work with and develop a business model that really works. You can build your firm around your personal and business goals and formulate what solutions you want to offer your clients.

Be prepared to put in the time and energy. You’ll need clear goals, the right tools, a smart strategy, and (of course) some hard work. But you’ll first need to know what you want out of your law firm. What’s important to you? How many days off do you want? What are your retirement plans? What does success look like?

There is so much to consider – from staff to technology – before signing the lease on a building. The following are an integral part in beginning a law firm.

Improving Law Firm Productivity

When you’re a solo or small firm, there is a lot going on.

You’re wearing multiple hats, trying to be great a business owner while also servicing your clients. It can be completely overwhelming.

Not only does being overwhelmed affect your peace of mind, but it’s also not good for business. Constantly rushing around to put out fires, respond to clients, and tending to matters leaves you with no time to think strategically about your business. Without the opportunity to plan and lead, it’s impossible to go from surviving to thriving.

After speaking with numerous attorneys, it was clear that their productivity and job satisfaction was being hampered by one simple thing: inbox hell.

We’re excited to have Mat Rotenberg, founder of Dashboard Legal share his insights on how lawyers can avoid inbox hell and improve their firm’s productivity at the same time.

Mat Rotenberg, Founder and CEO of Dashboard LegalInterview with Mat Rotenberg
Founder, Dashboard Legal

What’s the biggest challenge when it comes to the daily workflows of small law firms?

Small law firms, especially solo practitioners need help running the business of their law firm. This includes tasks like client intake, billing, follow up, all of the things that a practice management tool really brings to the table. 

There has been a great deal of innovation in this space, but the day-to-workflow, which for most attorneys is completely reliant on email has been completely ignored for the past 20 years. 

Why is the current email-centric approach bad for attorneys?

There’s a fire-hose of information that has only increased in the past five, 10 years, but there have been no tools to help manage that flow of information. 

Studies have shown that the average American processes the equivalent of 174 newspapers’ worth of data every single day

It’s all still in your inbox and whether you’re an organized folder or tags user or not, you’re still engaging in that day-to-day search. 

A recent study from McKinsey found that professionals are spending 19% of their time searching and gathering information and 20% of their time reading and answering emails. So you figure spending 20% of your time just searching for information, that’s an enormous, enormous commitment of time when there are pretty easily manufactured tools to just cut that down and help automate some of that organization.

Beyond being a big time-suck, does this dependence on email create other problems?

Consider the study by researchers at the Human Information Processing Laboratory at Vanderbilt University, where professionals working on two tasks simultaneously took up to 30 percent longer and made twice as many errors as those who completed tasks in sequence.  Another study of Microsoft employees found that once they were interrupted by an email, it took 15 minutes to fully regain their train of thought, whether they replied to the email or not. 

The volume of information is wild and the number of distractions we have in our day responding to clients, courts, and staff is overwhelming. The result though is that we as lawyers are constantly engaged in this back and forth of information, pinging back emails all day long, which comes at the expense of the more strategic work. 

I think there’s a misconception out there, a misnomer that the more we can ping back these emails, and the more we can handle the more productive we are. If 100 emails come into a lawyer’s inbox and we can achieve that inbox zero we had an amazingly productive day.

What I found in behavioral science research and in my discussions with dozens of lawyers developing the product that’s actually not where productivity happens. 

If you think about where your best work came in law school, in drafting a paper or a document in your law practice, that happens when you have that blocked out time to focus, to concentrate and you can start eliminating some of the distractions.

Is it more difficult for the small firm owner to deliver legal products compared to someone at a large law firm?

At a large law firm, they have huge in-house teams that handle client intake, that handle billing, that handle all kinds of the back-office processes that large law firm attorneys take for granted. At the small law firm level solo practitioner, they need the tools to do it themselves.

What I’ve seen in a lot of interviews with solo practitioners and small law firm lawyers is they’re cobbling together a bunch of different tech products, software products to really accomplish the workflow that they want. 

For every client, their case is the most important one you have. Is it possible to be up-to-date with every single client without spending all this time searching through emails for materials?

I like to give the example, which I call “The phone call.” You’re on a call with Client A, you got a lot of windows open, emails open, documents open, and Client B calls. 

A typical attorney workflow right now is to search their inbox for the latest correspondence, to open up their document management system, maybe email a colleague, look at the recent red lines. 

Ultimately the buck stops with the lawyer if you hire them, they need to be perfect in their organization of your materials, the buck stops with them and so I think lawyers feel that.   

Email is a good solution for sending the work product. For example, you need to send a summary of a document, you need to send action items in a bulleted form. That’s a good application for email. 

But for working in real-time, for getting legal work done, “Yes. No. Look at this precedent. Have we spoke to so and so?” That type of activity is accomplished best working in real-time, like with a chat tool, and that’s what our colleagues in the business world have found.

What’s the solution?

I think we haven’t evolved in a way with the software to figure out exactly how to block out distractions but the more information we receive the more important it becomes to set up those systems that make it easier to focus. 

Having the different workspaces (for each client) where your materials just live and you can jump in and out is one way to do it. 

It’s going to become increasingly important to carve out those spaces and to really handle the flow of information to operate at our best. And that’s really where the focus of productivity, software innovation that’s where it should be focused in the legal industry because that’s really how you create tangible value and the opportunities to do actual legal work.

How does Dashboard Legal help solve this problem of the overworked, overstretched lawyer?

I think the easiest way to picture it is as email plus and it’s really meant to address the day-to-day workflow of lawyers. 

Most lawyers who are working in either the solo-practitioner environment or small law firm environment are using some sort of practice management solution, a Clio, a PracticePanther, those types of products. 

What Dashboard Legal is trying to address is the workflow, how you interact with your clients, how you save documents, how you sort and organize your emails. It’s your day-to-day workflow which is a complement to the practice management solutions.

Dashboard Legal is like a mini command center for attorneys. All of your work is organized by client in an intuitive way that helps you get the right information faster. You can jump into one client board, you’re in the command center for that client and you have everything you need to make decisions. All of your documents, discussions, and information regarding a client are located in one single place. 

Instead of racing through a giant list of emails, hoping to find the right attachment, it’s already pre-sorted into useful buckets of information. You can jump from one client board to another quickly, really enables lawyers to do their job at the highest level without the micro-stresses of just constantly searching for information.

For the lawyers out there who want to tame their inbox and emerge with more time, less stress and provide a better experience for their clients, how can they get started?

You can sign up at DashboardLegal.com

It’s easy to get started, even for those attorneys who are not tech-savvy. The way I like to think about it is as email-plus. This is your email, you link Dashboard Legal to either G-Suite or to Outlook and you open it up and it looks exactly like your email. It’ll seem familiar, we’re building around this email functionality, plus you have all of these other features. You have the boards where you can toggle in on the left to access the siloed views of information, sort emails to documents. And then within the boards, you have those collaborative features. 

And I love hearing from lawyers. I love talking to lawyers about their technology solutions and how they handle their client delivery experience. 

The product is up and running, and we’re looking for people to come, and try it out with us. So if you’re that forward-thinking lawyer, reach out!

Law Firm Accounting (Financial Management)

What is a core problem that law firms have when it comes to their financials?

When we started, we were thinking a little bit broader in what they call practice management. This means document management, email management, docketing,  all of the different facets of running a law firm. 

The epiphany we had in the first pivot of the company was to say, “Hey, let’s be great at something,” and we chose invoicing. 

We chose invoicing because law firms can manage documents and other facets with different tools, but if they can’t run their finances, if they can’t get their bills out and collect money, they fail. 

Why is investing in financial workflow optimization so important for growing law firms?

I think that the one key thing that I would want your audience to hear is that if you’re gonna work on your business, there is not a better place to work on your business than on financial workflow. 

A lot of people have this idea that “I’ll go work on the marketing and I’ll go do this and that.” 

And the truth is, there are probably more gains to be had at getting better at billing and collecting and understanding the reporting than there is in thinking you’re gonna spend money and become better at marketing. And I know you guys do marketing. But the truth is if you can’t run your financial workflow all you’re doing is you’re getting more clients to burn through more overhead, and you really wanna increase profitability. 

Getting good at billing just elevates you and I will say this to your burnout point, there is nothing, nothing more stressful to an attorney than cashflow and potentially not being compliant with their trust account.

Why is getting invoicing right one of the most important aspects of a law firm’s financial workflow?

 Most lawyers run their practices on gut. “I kinda know what my billables are so that I can translate that to income,” and they’re running in a very cash-flow mindset. So when you think about how does LeanLaw benefit a law firm, you have to even take a step back and say that fundamentally, there’s the capture of the billable hour, which in most law firms is the Holy Commodity, the billable hour. 

Lawyers are chasing that billable hour trying to document it, trying to bill it, trying to collect it.

What we aspire to do with law firms is to help them create sound workflows, these repeatable best practices that start with a collection of time and end with the collection of payment, whether that’s increasing a trust retainer to help with receivables or other facets. If we create good workflows, we get good data, and if we get good data, we can interpret it and make a change about where we want our practice to go. So instead of just running it by the seat of our pants, now we can actually see and understand what practice areas are profitable, how the staff is being utilized.

Why is tracking time essential for law firms?

Well, I think time tracking is always important because even if you just use the function of time tracking to understand how much energy and time went into it. Time tracking goes into staff utilization, it goes into the profitability of the model. Sometimes it goes into the transparency of the work done so that you can validate that I did what I said what I was going to do or that this hour.

You want to track time because time is essentially the cost of goods sold. That’s what went into your product so it’s to suggest… It’s like lawyers don’t think this way, it’s like a restaurant not tracking the cost of ingredients and food costs as understanding the profit. 

Just looking at income doesn’t tell you what the profit is. You have to look at the food cost. In a services business, labor is your cost, so it’s important for law firms to be paying attention to the labor.

What are some of the big mistakes that law firms make when it comes to their financial habits?

I’ll break it down into three areas where law firms stumble. One is they don’t track time contemporaneously, so if the billable hour is your commodity, you gotta capture it just in time. 

There are lots of studies that say this, but if you wait till the end of the day, you lose a certain percentage of the time.  

If you wait until the end of the week, you lose a certain percent of your time.  

if you wait till the end of the month, you lose a certain percentage of your time. 

One thing is tracking time contemporaneously, and we have four different ways for people to track time, so we accommodate the many different personalities of time trackers. 

The second thing is that they don’t handle their accounts receivable correctly. Some of that’s visibility and LeanLaw has many different ways where lawyers can see live real-time accounts receivable. 

Some of that is not taking trust money or taking trust money as the initial retainer and then not continuous. And we know some law firms that the most important metric in the firm is of the invoices that got paid in a given month, how much of that was paid from trust money? 

That’s the most important metric in the firm because you always get paid if you have trust money. Tracking time and accounts receivables are probably the two largest or most significant sort of bad habits of law firms. 

There are others that sort of inertia around producing invoices. Some law firms, it’s just baffling to me that they’re like, it’s October and they haven’t gotten their May, June invoices out. So what is it in that law firm that’s causing such a huge delay in getting invoices out? Who’s making it so complicated? 

How does LeanLaw help attorneys manage the financial side of their business?

LeanLaw is a Software as a Solution tool. It’s an invoicing platform with deep integration with QuickBooks Online, so we handle all facets of how a law firm will track time, capture expenses, manage fixed fees, assemble those into an invoice, deliver to that client, allow that to be paid, and all of that is done with deep and fluid two-way integration with QuickBooks Online. 

Our sort of mission when we think about what we want to do with these tools is to help law firms better run their businesses, better run their practices. So we’re trying to enable law firms to have the data and the tools to make better decisions on their business. 

What are some of the benefits of creating sound financial workflows?

If we create good workflows, we get good data, and if we get good data, we can interpret it and make a change about where we want our practice to go. So instead of just running it off the seat of our pants by gut, now we can actually see and understand what practice areas are profitable, how the staff is being utilized. From those places, we make good decisions about what it is they wanna do. And the benefit, of course, could be increased income, but it also might be time, time to put back into your clients, time to put back in your community, time to put back into your family. So their benefit is really a derivative of creating these best practices about how we operate.

And in doing so, of course, in a 21st-century mindset of being in the Cloud and having your data stored properly and being able to work wherever you need to work, and having data at your access wherever you are. So I think that we talk about burnout. I don’t know if we’d solve burnout per se, but if we can create better workflows, the derivative effects is that they can run a better practice and a better business, and from there, I think we mitigate or at least put them in a position to make better decisions about how they wanna use that time.

What creates stress for a lawyer is cashflow. “Do I have enough cash to pay my bills?” And, “Are my trust accounts compliant?” There are some other things, but from a financial perspective, those are the two, and LeanLaw and QuickBooks Online, they’re pairing together with a proper QuickBooks ProAdvisor, that mitigates much of that stress, which puts law firms in a better place to be joyful and serve the clients better.

How can growing law firms become more profitable?

If you think about a law firm or lawyer’s practice, there are only two ways to improve financially, produce more revenue. So I’m gonna go out, get more clients, but I bill by the hour. So I have a certain amount of hours I can bill a week, times my staff. 

So if one way is increasing your revenue, the other way is reducing your overhead.

Most attorneys can’t increase revenue, in the sense that they get a client or two, they can get a niche, maybe they can change their billing rate, but that doesn’t really change the dynamic. 

They see a little bit more cash flow, and they feel in a better position, but it’s not a game-changer. 

So the real truth is overhead, and overhead is all about really staff. That’s what we talk about. 

You really have to understand, are you utilizing your staff well? 

Could we work virtually? 

Or could we work in a lighter overhead? 

When you get down into the software and some of the phones and things like that, those costs become really trivial.

So when we think about how lawyers need to change their practices, we think can you increase revenue? And the only way you’re gonna be able to do that is really understanding where your money is coming in and what work is more profitable or thinking about reducing overhead. 

And it doesn’t mean you need to fire a staff member. 

It means if you can create better workflows that are more automated, now that staff member maybe could bill or maybe that staff member could take more work off of your plate because they can do more project management. If they’re out of leads, they now become available to do things that are more productive for the law firm, and that turns potentially a cost center into a revenue center.

How do you see financial models changing for law firms in the coming years?

One of the things we’re seeing in LeanLaw is that law firms are creating new business models with our clients. 

It’s not the utopic subscription model, but more and more, we’re seeing law firms create flat monthly retainers that they can track time and create that more sticky relationship with their clients. 

That doesn’t displace the billable hour, it’s still the holy grail of law firm billing, but I believe clients are more inclined to listen to different business models, but to get back to your specific question, I think that people that stumble with time entry and they stumble with accounts receivable more than any other facet of their invoicing workflow.

Is there one thing that you would recommend to law firms who want to improve their financial systems in order to get them moving in the right direction? Whether it’s adding software, is it getting a good accountant? What are some of those things that you think are great starting points for someone in that mindset? 

I think number one is having the right intellect at the table. As I’ve mentioned earlier, good workflows create good data. Good data allows you to interpret information and make changes. 

So if you’re a growing firm and cash flow is a concern, you better have a strong financial workflow with good reporting to understand where cash flow is an understanding, not just how much cash I’m making, but understanding where the cash is coming from. 

What different disciplines or practices are producing the most profitable work? 

Am I really making the most of the staff I have at hand and are they producing income for me or are they just a cost center?” 

Having the right advisor to not only help you create those workflows, and this is what the bookkeeping community does, but also that’ll rise up above that and help you understand and interpret the financial information is absolutely critical. 

No tool alone will solve the problem. Some people say, “If I get a new tool, I’ll just be in a better place.” and that’s the wrong mindset.

If you’re a growing firm who wants to take control of your finances, get started with LeanLaw today! 

How to Market Your Law Firm (Business Development)

Law Firm Management (Operations)

  • • Legal Operations
  • • Law Firm Operations
  • • How to Organize Law Firm Files

In order to be successful in starting and maintaining a law firm, there are ten key principles you should know:

Marketing – The purpose of marketing is to generate leads and there is a wide variety of ways to do this. Find at least three ways that work for you and use them to grow your business.

Sales – The purpose of sales is to sign up clients. Once you start generating leads, you can convert them into paying clients through sales.

Services – Once you have mastered marketing and sales, you must perform services for them. This leads to payment.

Staff – Eventually, you’ll need staff – the right staff to do the job. You’ll have to figure out what kind of culture you want to develop and who best fits that culture. Develop a list of characteristics you’d like in staff members.

Systems – Without documented systems – policies and procedures – you cannot scale your business and you need written systems for every part of your business.

Space – After you start hiring staff, you eventually need more office space. It’s easy to get caught up in “keeping up with the Joneses” and rent a bigger, fancier building than necessary. But keep things manageable and avoid signing a long-term lease.

Money – Very few attorneys have bookkeeping and accounting experience, but it’s important to manage your finances. You need to be able to know the basics of finances, how to read a profit loss statement, and how to analyze cash flow.

Metrics – You need to be measuring numbers to keep your business afloat.

Strategy – Come up with a great strategy then implement it. Get leads, make the sale, collect the money, do great work, and then obtain referrals.

Self – Upgrading yourself is the most important step. Read books, do research, take classes, network with other successful business groups… You’ll never build a successful law firm by staying in your comfort zone.

People Management (HR)

  • Law Firm Recruitment
  • Law Firm Hiring Process
  • Attorney Interview Questions
  • Standard Operating Procedure Hiring Process for a Law Firm

Screen Your Staff – Make sure any potential employees are qualified, fit in with the culture you’ve created, and has a great attitude.

Set How to Onboard Employees – You should have a way to give an Employee Handbook, sign paperwork, and orient new employees.

Delegate – Delegate work to paralegals and other staff to maximize your potential.
Run Effective Meetings – Make sure your meetings cover everything they need to, set an agenda, cover your core talking points, and talk with employees about projects they must report on.

Manage Employee Performance – Guide your employees toward success, reward them for their achievements, support them during failure, and provide resources to them.

Remember that opening a law practice is a huge undertaking that requires thought, determination, and know how (through research). With the above tips, you’ll be well on your way to being a business owner.

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