I’ve recently been working with a law firm who have experienced some impressive growth. They’ve doubled their revenue in three years – growing from one to two million dollars. As well as this, the two directors annual dividend has grown by $50,000 – not groundbreaking, but certainly no kick in the teeth either.
They’ve hired more solicitors, administrative staff and even senior associates. In this same three-year time span, their expenses have grown from $800,000 to $1.7 million.
The partners are in a great mood – more revenue makes everyone feel good.
It’s a tough conversation to have, but their revenue growth rates have been at the expense of growth in partner returns, i.e. expenses are growing at a greater rate than revenue. More expenses equals greater responsibility and more financial risk to the business.
I’ve had to quietly remind these partners that while their revenue has grown, their profit to revenue ratio has fallen from 20% to 15%.
Setting your firm up for efficient growth
This increase in revenue now means an increased responsibility to maintain this level of incoming work. They have to sustain their higher fixed costs relating to payroll expenses, increased office space, equipment, and other creditors.
Consequently, their business overdraft has increased to accommodate the highs and lows of cash flow. A lot to shoulder for the additional $50k.
Having tools and processes in place before you grow will help grow revenue for profit’s sake. Changing the way you work day to day can significantly improve your bottom line.
It’s easy to stand your ground and say, ‘it works just fine at the moment’. But by the time you start growing it will be too late.
You should take the time once a year to review your business and consider what changes are necessary to make sure your current processes are performing at their peak and could handle a 50% or 100% increase in workload.
What works when you are a firm of 2-5 lawyers won’t suffice when you are 10-12 lawyer firm. For example: many firms spend 1 hour on a document but only charging for 45 minutes. Time is lost in finding the template, inputting data manually, double or triple checking because it was an old document, copying over legacy information, saving the document in three different places, and so on and so on.
A four-step plan to ensuring profitable growth
Growth is good, but profitable growth is better (and more sustainable). So, take time to:
- Objectively assess what processes are under strain – your staff will gladly highlight manual and mundane processes;
- Calculate the opportunity cost of these inefficient processes. Whether that be less time for fee earners to spend with clients or more time for admin staff to issue invoices etc.
- Contact your providers to understand how effectively you’re utilising their existing functionality to streamline office processes and matter management. Ask for training to upskill your team;
- With a clearer understanding of your growing business needs, talk with other technology providers to gauge what’s on offer. The cost of changing software could be less than the ongoing opportunity costs incurred due to lost productivity.
Growth (or the desire to grow) offers a strategic opportunity to involve key staff to assess the firm’s current and future needs.
Once you’ve performed this assessment, enforce changes with conviction. Nobody likes change, but it doesn’t mean it isn’t good for your staff or your bottom line.
Looking for the right tools?
FilePro is pleased to provide a comprehensive Due Diligence checklist to ensure your next decision regarding new technology strategically and profitably supports your growth strategy – just click here.
Kelly Mills has been FilePro’s Qld State Manager for over 15 years, advising over 250 law firms. Kelly’s IT and Accounting background coupled with strong operational experience provides an edge when searching for ways to help her clients innovate and grow profitably.
