Hope is not a Strategy
If your firm is not moving in the direction you want, it may be because you’re hoping for success instead of planning for it.
I spoke with a legal business owner recently who was telling me the story of where his firm started and where it is now. I’ll call him Kevin. Kevin was telling me about how after 7 years, he finally sees how specializing in a few practice areas creates so much more value than being spread thin over many. Kevin came to this realization by taking a step back from his practice, observing the operations, and reading a very good list of business books some of which we both geeked out over a little.
After 7 years, Kevin decided to pivot his legal business and serve a niche market. He was so excited and just felt this sense of purpose within his new direction that really settled well with him personally. The first thing Kevin did was re-do his entire website to be aimed at his ideal clients. He explained that he hired this great company to do it, and it was just wonderful and looked great and he was so happy with it. Then he paused for a moment and said, “but I have not gotten one call from my website and I just don’t understand why”. Kevin thought he could put his website out there in the world and then people would just come flocking to the site and want to sign up for his services.
So often we think that we can put one thing in place and the rest will magically follow
The reality is far different. Growing and developing your legal business takes proactive strategy supported by actions over time. I know this is not what you want to hear because everyone is looking for that one thing that they can implement to flip the profitability switch on.
Sorry to break the bad news, but we’re accountants so it comes with the territory.
Here’s what you CAN do to get started building a financial strategy
Evaluate your Systems
The systems we look at are made up of the software you utilize in your legal business. Typically, legal businesses have a combination of the following:
1) CRM Software
2) Case Management Software
3) Accounting Software
4) Time Tracking Software
Sometimes these can even be Excel sheets. Here’s what’s important, technology is one of the best strategies to optimizing efficiency in your legal business and you should absolutely use it to your advantage. Here is a great software comparison tool you can take a look at.
The biggest mistakes we see legal business owners doing is not allowing these software’s to communicate with each other creating an effective check and balance in your financial management. For example, case management software often integrates with cloud-based accounting software by importing invoices and expenses to be accounted for on the books. This is a great feature that so many legal professionals are missing out on.
Evaluate your Reporting
There is a plethora of financial reports that may be of use to you when making important business decisions. This is going to depend on your firms’ goals and how you manage your month to month budget tracking.
A few reports you will ALWAYS want to add to your monthly review
1) Income Statement
2) Budget Variance
3) Margins of Profitability per Practice Area
4) Balance Sheet
So often legal business owners do the bare minimum when it comes to bookkeeping and accounting and view it as an obligation that once fulfilled, is irrelevant in the day to day operations of the firm. They couldn’t be more wrong.
Getting the most value out of your financials means studying them each and every month to get a clear financial picture of where your firm stands, where it’s going, and monitoring your financial goals. The two financial tools most lawyers are missing is #2 and #3. Here are a couple tools to help you get started.
Evaluate your Forecasting
You didn’t start your legal business to work 60-80 hours each week, and not retire. You started it to achieve the exact opposite. Great financial management forecasts your financial situation all the way through to your ultimate goal of exiting your practice in a way that it leaves you with a profit which allows you to retire the way you and your family want. This is where financial forecasting happens.
What should you be doing during the year to achieve this?
1) Work with a retirement planner no less than twice a year
2) Set financial goals and forecast the associated expenses so you can be prepared
3) Create processes that support the operations of your firm, people will pay more for a firm with proven processes
4) Don’t wait until retirement becomes a reality before you actively plan for it
Success doesn’t just happen, it’s planned for. If you do this legal business thing right, you can leave a legacy that goes on after you are gone. And this legacy can also fuel your retirement and help fulfill your personal aspirations. Don’t know how to start forecasting in your firm? We’ve got a tool for that too.
Evaluate your Processes
When you think about exiting your firm, selling is an option. People don’t buy businesses, they buy processes. When a business runs on processes more than it does people, the price tag automatically goes up because any one professional can step in, follow the processes, and maintain a stead track of profitability. Financial processes are a big part of this picture. Some things you should have in place are:
1) Document software processes
2) Create monthly checklists
3) Set firm due dates
4) Have regularly scheduled meetings
Financial processes are often overlooked out of fear of the books. The books should be a tool that empowers you with financial information and insight into your financial future. If you fear your books, you’re not doing them right and are certainly missing out on a valuable piece of the bigger picture about where your firm is headed.
Looking for a good podcast for running an efficient legal business? Here’s one of our favorites.
Ready to level up with this type of strategic planning? Contact us here to book your initial analysis of the 4 areas we discussed.