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2008 is already delivering significant challenges for law firms amid the credit crunch and sub-prime mortgage crisis. Consultant Viv Williams gives his top tips for remaining competitive
If your law firm is not feeling the bite of current economic circumstances, you are one of the lucky ones. Besides keeping an eye on the Legal Services Act and the probable arrival of 'Tesco Law' as legal services are deregulated, law firms are also having to cope with more immediate problems.
The introduction of home information packs (HIPs), and the effects of the sub-prime mortgage crisis, resulting in a reduction in the number of new conveyancing instructions, are all having a dramatic impact on revenue.
Alongside these factors, my understanding is that pressure is being applied by the banks to ensure that law firms with high levels of unsecured debt are effectively and efficiently managing their practices as businesses.
So what measures will give the progressive firm a competitive edge? Here are a few.
Daily time recording
Many law firms, especially those whose partners have traditionally run their practices as a hobby, may never have considered the true implications of cash management. Most businesses know what their daily sales are, and law firm heads should know what their fee-earners have recorded as billable hours on a daily basis.
The three main overheads of a law firm are usually office costs, staff, and professional indemnity premiums. These are predictable and it is therefore easy to calculate daily overheads. Ensuring that partners and fee-earners have recorded time in excess of these costs should be reassuring to any managing partner.
We often recommend that a report, completed by everyone, recording the previous day's billable time should be with the managing partner by 10am the following morning. Many firms that adopt this management tip are sharing the information with all staff to create a competitive environment.
This practice allows the managing partner to identify problem areas at an early stage and ensure that issues are dealt with. There is no point in waiting until the end of the month to ask what happened with a particular department - by then the damage is done.
Monthly billing/collection
Many practices are still waiting to bill clients when a particular file is closed. This extends their lock-up - the combination of work in progress and debtors - and creates cash-flow issues. Wherever possible it is imperative for a law firm to bill for time recorded on a monthly basis.
This has the beneficial effect of reducing work in progress and improving cash flow. The letter of engagement should clarify this and help manage clients' expectations.
With the banks' attitude hardening towards cash-flow management in law firms, this is a method I suggest all firms should adopt.
Having invoiced clients, it is imperative that a disciplined procedure is adopted to collecting cash. Terms and conditions will have been notified to your client in your letter of engagement, and '30-day/end of month following date of invoice' terms should be adhered to.
Once the invoice reaches this point, an appointed person should be made responsible for chasing these debts. A system of follow-up calls should be implemented, with your credit controller agreeing times when these invoices should be paid. Having credit-card facilities is a useful method of collection. As a last resort, you could seek help from fee-earners and partners. However, keeping a disciplined approach, which may bring short-term issues, will have longer-term benefits.
Consider offering other forms of finance to your clients from the outset, such as client credit or interest-free finance, which also mean your funds are secured when taking on the client in the first place.
Interestingly, some firms are now taking the additional step of credit-vetting their clients before agreeing to undertake work, therefore avoiding any cash-collection issues.
Clear strategy
Many traditional practices offer a wide range of legal services which encompass private clients, commercial and, in some cases, publicly funded work.
Many partners practise their specialism with a passion - but that does not necessarily mean those passions are profitable. I have come across numerous examples of partners in law firms failing to talk to one another about the key issues affecting their practice, and instead spending partner meetings discussing irrelevant issues.
Having a clear vision and strategy for the next two to five years is becoming a prerequisite for the successful practice.
We are seeing significant growth in demand for partner retreats, when partners openly discuss their vision both for themselves and the firm. In some cases, partners have even decided to split the partnership and go their separate ways. Retreats tend to work significantly better when an external facilitator is used, encouraging emotions to be expressed and voting and decision-making to be undertaken on fundamental issues. Once the vision is clear, a business strategy can be implemented.
Remember: failing to plan is planning to fail.
Pay and awards
The traditional law firm culture does not lend itself to fee-earners participating in the growth of the firm. But becoming a client-centric, people-focused practice is the vision for the modern firm.
All staff should be encouraged to provide 'world-class' service to their clients and should be rewarded for introducing new business into the practice. Peter Drucker, the business guru, once wrote that 'people will do what they are rewarded for', and the introduction of performance-related remuneration across the practice would result in a significant change in the culture and performance of your practice.
In many practices, there are two types of fee-earner: those who require flexible hours and part-time working conditions, and those prepared to attend breakfast meetings and evening networking events in addition to their working day. Both are essential for the firm of the future.
Agreeing with fee-earners a set number of recoverable hours for a basic salary is now becoming more common. Any work produced and recovered beyond the agreed hours should be paid as a bonus, thereby encouraging fee-earners to market themselves and the practice.
The bonus structure can vary, depending on the work and the individual, but as the overheads are fixed in the short term any additional work goes straight to the bottom line. I have seen bonuses as high as 50% for additional work, with the average being 20-25%.
Encouraging all staff to participate in a rewards system is even likely to bring in significant new instructions.
Pro-active products
Legal work is mainly transactional, and 'need-driven' services are only usually required when clients have a problem or require the use of specific legal services. Changing some of the services you can offer to pro-active ones will mean closer relationships with clients and more opportunities to cross-sell services.
For example, many employment lawyers are called by their clients when events have taken their course and there is little opportunity to manoeuvre. However, some law firms are now introducing insurance-backed employment packages that create a more pro-active relationship with both existing and potential clients. The key to this type of service is the importance of a good marketing plan and the commitment to deliver.
We have also helped practices to introduce 'membership clubs', providing a variety of services to their clients, both private and commercial. For example, local businesses might be provided with an 'in-house counsel' service, encouraging them to enquire about a variety of services outside the usual service-level agreement.
There are many ways of changing the way firms have traditionally delivered legal services - it just takes a little imagination and a lot of marketing.
Marketing strategy
Having a marketing plan is essential for the law firm of the future. The plan should contain activities, events and advertising, all of which must be both measurable and accountable. Many lawyers still think placing an ad in Yellow Pages is sufficient marketing activity for 12 months - and wonder why their clients are going elsewhere.
It is imperative that you have an up-to-date website that is easily accessible - 'Generation Y' is now being joined by the older generation of 'silver surfers' using the internet to locate legal services. Try to keep personal data in date and ensure that you have a steady flow of news items and events advertised on the website.
Some law firms are attracted by non-measurable advertising ideas. Sponsoring a roundabout or an expensive advertisement on a railway platform might raise your profile, but will probably have little real impact.
A marketing plan can ensure you are in contact with your clients and potential clients, ideally ten times a year. This could be through seminars, newsletters and other direct marketing. Harvesting email addresses from clients is an economical form of communication. In fact, many progressive firms are now sending newsletters by email - which is far more cost-effective than the printed version - or even dispensing with these and using a blog instead.
Advertising has its place but please ensure you use a method, such as 0800 or 0845 numbers, to track when calls are received. It is only by tracking that you can honestly state whether the advertisement actually worked.
Adopting these simple tips is likely to go a long way to improving and demonstrating your law firm's management expertise, making your practice more competitive and building a more successful business.
Viv Williams is managing partner of the 2020 Lawyers Group and a consultant to law firms on management, practice development and marketing
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