Planning for the New Year: An Approach for Small Firms

This is an article that contains a methodology that I first published in 2000. Nineteen years on, during a time of change, we often forget the basics, those things that made us successful in the first place. Time to revisit.

Small firms (and many larger ones) are being challenged by service commoditisation, increasing insourcing of legal services, increasing costs, and growing pressure from cheaper, new law providers. Having said that, some firms are booming, busier than they have ever been. We at Edge International have observed over many years that the better-performing firms are usually those that have these features:

  • A well-thought-out strategy: They know what they want to be and what they don’t want to be;
  • A leverage structure with a balance between relatively junior solicitors and senior solicitors, not all one or the other;
  • An understanding by all fee earners of ‘minimum acceptable contribution’;
  • A clear pricing strategy, regardless of methodology (fixed fees, hourly rates, scale, perceived value or whatever). The best performers keep all of these possibilities in their tool kits;
  • An understanding of cost of production;
  • A management structure with clear objectives and the support of partners;
  • Leadership as well as management; and
  • Good financial housekeeping (price, WIP and debtor management).

None of this is all that surprising. However, many firms fail to implement strategies that they know will benefit their businesses: they think ‘It’s all a bit too hard’. It’s not rocket science (as they say). Running a successful law firm has always been about implementing systems to get the work, do it efficiently, bill it and collect the money. I doubt this will change in my working lifetime.

In my experience the best self-help first step in the practice-improvement process is planning. I am not talking about a multi-volume document brimming with colourful flow charts, management clichés and motherhood statements. On the contrary, I am talking about a discussion that results in a one-page summary that tells every partner (or sole practitioner) where they are headed. The plan will guide those who have been delegated the responsibility of implementing it.

I recommend a discussion around the following decisions. Meet as a partnership (or with a key advisor if you are in sole practice), away from the firm, somewhere where partners won’t be distracted by staff or clients. Give each item full and frank consideration.

What type of work – refers to the type of matters the firm is seeking to offer. In considering this, look at those services that you offer now. Consider what you would like to stop doing or stop doing within 5 years. Having done this, consider what you do wish to be doing, and add these offerings to the ones that you want to keep.

Partner numbers – refers to the number of equity partners. You may wish to include salaried partners here, but I usually put them into the “Employed fee earners” section.

Gross fees – refers to the total fee billings of the practice (excluding disbursements).

Net profit per partner – refers to the desired profit per partner. When you are considering desired profit, remember that as a principal you should receive a reasonable pay for your time and effort and a reasonable profit.

Employed fee earners – refers to the number of employed solicitors, associates, non equity partners and paralegals. (Full time equivalent so someone may be 0.5 ‘paralegal’ and 0.5 ‘support’.)

Support staff – refers to all support staff in full-time equivalents.

Space (sqm) – refers to the office space required. The average Australian firm uses about 25sqm per person (including public space, like reception and meeting rooms). This is not ideal though. I suggest that you allow for about 18sqm/person. We are told that best practice space utilisation is about 7sqm/person, but this requires significant cultural and operational change.

IT commitments – refers to any foreseen expenditure on technology such as PMS, litigation support, marketing data base, etc.

The best way to approach these discussions is to fill out the actual numbers for this year then do year +5 first. Come back and do year +1 next, then simply ‘join the dots’.

Armed with the plan it becomes a matter of execution. Your firm will have greater success if you appoint a managing partner to drive agreed change. This is not a promotion or an elevation in status, it’s a job. I’ll chat about the ‘ideal managing partner’ next time.

Neil Oakes

Director, FMRC

P +61 2 9262 3377