3 Tips For Law Firms To Increase Profits By At Least 20% In 2023

For an industry that has been in existence for a very long time (before planes, trains, and automobiles!), there has never been a better time to be a lawyer. But, the biggest complaint I hear from my clients is that their bank balance is never as large as it should be in comparison to how hard they work. Do you feel the same? Well, let's see if we can fix that for you.

Key Moments in the Legal Industry

Late 1800s

The late 1800s saw the creation of "large" law firms where four or more lawyers began to merge their solo firms allowing the new firm to better serve the needs of their business clients who were beginning to increase in complexity.

Early 1900s

Of course, merging multiple solo firms into one larger firm created a power struggle. So, it was no surprise that the early 1900s started off with firms implementing the "Cravath System", an organizational management structure that is still used today by firms in most professional disciplines today.

For better or worse, the Cravath System introduced things like encouraging partners to specialize, one partner was deemed the managing partner to run the firm, associates who were previously paid from the "eat what you kill" philosophy, were now paid a salary for work they did for any of the firm's partners, and the "up or out" staffing policy was established.

Large firms continued to grow and prosper with ease in the early 1900s as both the political and industrial environments continued their increased complexity resulting in a TON of legal work.

Late 1950s - 1960s

By the late 1950s and throughout the 1960s, large law firms were viewed by their corporate clients as trusted advisors. Cha-ching, cha-ching for billable hours!

Up to this point, individual legal services were only something wealthy people could afford until legal aid was normalized in the 1960s. This sparked a demand for individual legal services.

So, you could say that life as a lawyer was good. All-in-all, legal work was everywhere. New clients were knocking down doors seeking legal counsel. It was impossible to not have clients. Impossible to not make money. Lots of money.

For decades, the profitability of any law firm of any size was a foregone conclusion.

The 1970s into the 21st Century

The fire starts to die.

Starting in the 1960s, corporate clients began creating their own in-house legal departments to control their legal costs after being under fire from their shareholders to make more money. 

By the end of the 1990s, the internet begins a trend to provide false comfort to individuals and small business owners to self-manage their legal issues.

Ok - but why the history lesson?

While there still seems to be a lot of legal work to be had, it is harder to manage the finances of a law firm in 2023. Why is that? Because chances are good that the reason you are struggling now is because of your place in the evolution of the legal industry.

I am not an attorney; I am a CPA. But, my career path is most likely parallel to yours.

I worked what seemed to be a lifetime losing my soul at a Big 4 CPA firm after college where we had the same "up and out" staffing policy. I started there determined to be a partner, if not the office's managing partner one day. Go big or go home and the view from the corner office was amazing for this rural girl who hadn't stepped foot in a "big city" until I was in college.

Unfortunately, I worked for a handful of partners who dictated my annual revenue goals while providing minimal guidance on how to actually meet those goals. And, I don't know about you, but college didn't teach me how to network or nurture clients.

(Laughably) in hindsight, while my accounting degree prepared me to pass the CPA exam, it did not prepare me to operate my own CPA firm.

You can't tell me this doesn't sound familiar, right?

Luckily, we are in a time where being a small business owner is becoming the norm. Support for small business owners is widely available, but what I hear the most from my clients, is advice that works for many small businesses, but does not work for law firms.

And, where does that leave you?

I am happy to let you know that I see law firms beginning to shift towards a new way of doing business. There's growing acceptance and implementation of digital tools which have led to the promise of increased efficiency, but my concern is that efficiency enough to accomplish its intended purpose: fatten the firm's bank account. And if it does, is the increase lucrative enough?

Three Practical Tips

I know what I talk about with my clients on how they can grow their profit and bank account. But, I wanted to know what others thought too. So, I reached out to several experts in the legal field to get their top tips for things that you can do today to increase the profit and bank balance of your firm in 2023.

1. Offer multiple payment options

A great tip from Nicole Black, lawyer and Senior Director of SME and External Education at MyCase law practice management software:

"21st-century legal clients expect multiple payment options. Gone are the days of accepting cash or checks only. Today’s legal consumers are used to paying bills online using a variety of payment methods. Law firms should accept credit and debit card payments, along with cash and checks. Doing so is convenient for your clients, encourages timely payment of law firm invoices, and makes it easier for you to invoice clients and get paid."

Absolutely! Don't let your clients treat you like a bank. Law firms have it rough with cash flow right out of the gate given the standard model of monthly billing even if collection is not an issue with the use of retainers. Giving clients a variety of ways to pay you will encourage them to pay your bill faster. Even if it costs you money*, don't waste time thinking about it. Just do it. No excuses.

*factor the cost into your fee structure! Assume every client will pay you through the most expensive method you offer and raise your rates to cover that cost.

2. Management-Level Auditing Reports

Collecting money is always good, but are your staff doing what needs to be done so you can send out a bill at the end of this month?

If you aren't sure, here's a good tip from Stacey Burke, Attorney / Owner, Stacey E. Burke, P.C.:

"Law firms using case management software should run a variety of management-level auditing reports on a regular basis. These reports can include reviewing how often staff members are communicating with clients, working on matters, and also help identify mistakes that can be rectified with retraining. Instead of being frustrated with existing employees, isolating their pain points and retraining them so they can do their jobs better is a productive, positive way to help them while helping your firm increase efficiency, move cases toward monetization more quickly, and avoid missing important issues - all of which increase profitability and make for better attorney-client relationships.

If a firm does not have case management or matter management software, it should acquire it. If a law firm does not have auditing reports set up, it should work with the software provider or a consultant to set them up."

Yes! There are several great case management systems designed specifically for law firms that make it easy for a firm to monitor their active cases and confirm what their associates and paraprofessionals are doing to advance each case from beginning to end. And as they say, the proof is in the pudding.

Monitoring reports does not need to be time-consuming. Determine the reports that work best for you and be sure to calendar a recurring task to get the review done timely.

3. Guaranteed Profits

This last tip is from yours truly. You may think it's a ballsy claim, but yes, your firm can have a guaranteed profit year after year.

You see, I know a secret: profit is a habit.

I hopelessly tried different tips and tricks for years when I started my own firm in 2005, but reading the book, "Profit First" by Mike Michalowicz was a game-changer for me and my firm.

Mike and I after the annual PFP ProfitCON event in September 2022.

Using this proven cash management system, I am able to monitor and manage my cash, both in my firm and personally, with ease.

This book changed my life so much that I became a Profit First Professional (PFP) several years ago so I could help business owners finally get a handle on their money. 

Conclusion

Either of these tips will lead any law firm in the right direction toward profitability. However, there are certainly more things that firms can do to achieve their goals, so don't be afraid to go above and beyond these steps!

With a little bit of discipline on your end, by 2023 you should be able to increase your profits by 20% or more.