5 Simple Ways To Improve Your Law Firm's Profitability
Law firm profitability is something that all law firms seek to achieve. It is likely a goal for every law firm but when it comes to putting the strategies in place to ensure profitability, it can be hard to nail down the perfect plan of attack. When a law firm attains profitability, they have the resources to better serve clients, ensure partners and staff are compensated and attract high-level employees.
As the leading accounting firm for attorneys, we have created the Show Me The Profit™ system that improves your law firm’s operations, increases revenues, and makes more for what you bill. With our processes and tips, you can grow your law firm's profits and work toward other business goals. A key part of reaching profitability is fully understanding the difference between revenue and profitability. While revenue is vital for a firm's success, it is not the only component and it is not the same as profitability. You do want to boost revenue but more importantly, you need to ensure your firm's net profits are successful in the long-term. If your firm is increasing revenue without increasing profitability, there is money lost. If revenue increases because you are serving additional clients but so does overhead and administrative cost, you are slashing your profit margin. In order to increase profitability, a law firm needs to balance maximizing its revenues while minimizing costs.
The following tips will help your law firm improve operations, maximize billing and reach peak profitability. • Leverage & Outsource
While you may want or feel you need to wear many hats, it's important to remember that your time is valuable. You want to ensure you are maximizing your value and time by focusing on the tasks that will generate income and outsource or delegate other tasks. Delegation increases not only your capacity but the whole firm's capacity. Leveraging and outsourcing can be in the form of outsourcing, hiring or utilizing technology. The goal is to have everyone at your firm focusing on their highest-value work.
Utilizing legal tools and technology can be a game-changer for your firm. The tools and technology can drastically increase your team's efficiency. This also allows you to keep costs relatively low and focus time on billable or profit-driving tasks. The right tools and technology for your law firm can mean streamlined processes, improved billing and improved client experience, all leading to profit growth for your law firm. A 2020 Legal Trends Report shows that per lawyer, incorporating technology can lead to 6% growth & up to 3% more collected payments. While technology can be a great asset to your firm, it's important to do your research and verify the platform and that it is solving a need and pain point in your team. You want to be strategic about implementing technology and tools.
• Automate Did you know the legal trends report shows that the average attorney only spends 2.5 hours per day on billable work? That means attorneys are missing out on a great deal of revenue and profit generating opportunity. The biggest time draining tasks in a law firm usually deal with client intake, practice management, time and expense tracking and legal billing. By automating these tasks, you free up time for billable tasks and ultimately have an opportunity to generate more revenue and profitability for your firm.
• Maintain Healthy Cash Flow
Without a healthy cash flow, your firm will struggle to reach profitability. To increase cash flow, look at ways to reduce expenses, follow up on unpaid invoices, & make it easier for clients to pay by adding an online payment method option.
• Offer Alternate Payment Options
The most important aspect of reaching profitability means getting paid. The easier it is for clients to pay you, the more likely you are to see those payments come through. The 2020 Legal Trends Report showed that 65% of clients prefer to pay through electronic payment methods. Accepting credit card payments will also increase the rate at which your law practice is getting paid. Alternative billing options can also be a great way to increase profitability. Billable hourly rates isn't necessarily the best approach to optimize profits. Subscription-based billing, sliding scale, unbundled services, evergreen retainers, flat-fee billing and contingency fees can serve as alternatives that will boost revenue and ultimately profits. Payment plans can also be a great way to ensure you get paid.