Law firm owners often have difficulty separating their success in the legal world from their success in the business world, even though they require different skills to succeed. One thing is certain, however, and that is the fact that without an effective finance department in your law firm, it doesn’t matter how good a lawyer you are. A law firm is a business first, and it has to thrive in order for attorneys to do what they do best.
Since law firms live and die by the financial decisions and processes made every day, that’s why it’s vitally important to have the best finance department strategies possible. Those strategies, plans, and guidelines can be put in place through an effective law firm consulting program like the one offered by Brain Trust Legal. While we can only begin to scratch the surface here, keep reading to learn more about some of the insights that a law firm consulting program can provide for your firm.
If you were on a sports team, you wouldn’t go out and put in all the effort you had to play a game, only to realize that no one was keeping track of the points. The same is true of a law firm; if you’re not tracking the progress and profitability of your business, then you can’t plan for how to grow or know when you are already growing. That’s where a scorecard comes in handy. A scorecard is exactly what it sounds like: a chart that tracks all of the Key Performances Indicators (KPIs) that help you gauge the financial health of your law firm.
In order to know which KPIs you should monitor on your scorecard, you want to use a four-step process:
You start by establishing which specific goals you’re trying to accomplish. The more specific you make your goals, the easier it is to define what KPIs reflect them. For instance, are you just looking to make your finance process more efficient? Are you interested in expanding to new markets? Do you want to see your marketing ROI improve? Each of those goals is different and will be measured differently.
Once you’ve done that, move on to establishing the metrics that will drive those goals. If you’re looking to make the financial process more efficient, you could measure the time on desk once a settlement has been paid. If you’re focused on your marketing ROI, you could drill down on which ad variations are delivering the highest number of leads. Those metrics will help you see changes in real time.
Next, you want to get details on where the firm is currently with those metrics. You want to establish a clear baseline against which you can compare numbers moving forward. And finally, you want to implement any changes or strategies to get those numbers up: making the firm’s team members aware of the KPIs and your expectations of them, discussions of new strategies and potentially bonuses or performance evaluations connected to them, etc. Now you have a scorecard of KPIs, and you’re ready to make changes and watch for results.
A Chief Financial Officer (CFO) is a key role for a certain size and type of company, and many law firms do rise to the threshold of needing one. But do all law firms need them, or is it something that is reserved or necessary only for firms of a certain size? The answer for this is nuanced, because there are options for multiple levels of law firm size.
For a law firm that has approximately 10 team members or less, there is likely no need for a CFO. The work needed for a firm that size can likely be handled by an accountant alone. Once the firm begins to grow past 10 team members, or there are intentional plans for that growth, then the conversation about a CFO comes into play.
In all likelihood, you still don’t need a full-time CFO. You do need more than an accountant, though. An accountant does important tasks like crunching the numbers and making sure reports are accurate and delivered and paperwork is handled properly; however, an accountant is more of a soldier, while a CFO is a strategist who makes plans that help your firm grow. Once you grow beyond 10 team members, you could consider working with a fractional CFO, which is simply a person who serves in the CFO role in a limited capacity. They meet with the firm owners, make observations and recommendations, but they’re not a constant presence in the firm.
That should work for firms with over 10 team members. When a law firm gets to 50 or more employees, however, that is a shift in company style. Because there are other changes happening to turn a small business into a medium one, that is a great point to move into CFO territory.
Regardless of the plans you’re making for the future, there are financial considerations you could and should be making right now that can have an impact on the financial health of your firm in the long run. Before you make new plans for your law firm’s financial future, there are some improvement measures you can take right now.
It’s important to keep an eye on your caseload versus your team member count. If you have too many team members for your number of cases, you’re losing money through staffing costs. If, on the other hand, you have too few team members for your caseload, the cases may be slowed down by the lack of progress, preventing quick case turnaround time and also potentially sacrificing case quality and not getting the true value of each case. It’s vitally important to stay on top of these metrics and adjust accordingly.
If you don’t have an approval process in place for the cost of your case expenses, those costs can run up quickly. Without management and oversight, there’s no way to verify that a case expense is a necessity, an optional advantage, or an exorbitant and unnecessary expenditure. For instance, without guidelines and approval roles in place, an attorney who wanted evidence for an accident case could approve the wrecking of cars as a case strategy, and there would be no one between them to put a stop to it. Make sure to have a clear plan in place for any costs outside of established norms or certain cost thresholds.
Marketing is a much-needed part of the case acquisition process, but often there is little oversight from the law firm on keeping accurate track of the ROI on their marketing dollars with their vendors. Without clear, detailed tracking information, you have no idea which of your marketing efforts is delivering the most leads for the best price. No vendor is going to tell you that their method isn’t working as well as others, so it’s up to your firm to keep an eye on those numbers. It all starts with setting up effective tracking systems so you know where your leads are coming from.
You probably know the expression ‘You don’t know what you don’t know.’ But have you heard the saying ‘Learn from the mistakes of others; they’re less expensive’? Navigating the financial aspects of owning a law firm is a challenge for anyone, but there’s no reason to struggle with growth and balance on your own when resources exist to save you that time and trouble.
With Brain Trust Legal consulting, you gain the advantage of 50+ years of successful law firm ownership and experience from our founders, Rob Levine and Darryl Isaacs. You get hands-on direction and accountability, and you also get the benefit of every victory and every mistake that they have made which led them each to owning law firms that have recovered billions of dollars for their clients. To learn more about BTL consulting, you can view the details here on our website, or you can call (855)743-1636 from anywhere across the U.S. to get more information and speak with a member of the BTL team.
