Stephen Fairley 2013-11-14 11:08:55
Keys to Recession Proof Your Law Firm: How to Create an Upturn in a Downturn If you haven’t yet experienced the economic downturn, it’s likely you will soon. As large companies contract, the trickle-down effect is felt across the nation. In the next 12 to 18 months, we’ll see many changes in the legal industry. Specifically, I believe there will be four types of law firms: • Firms that Fail—Attorneys who do not respond to the downturned economy by taking wise and measured action will not make it. • Firms that Merge—Although this has been a trend among mid and large firms for some years now, I see this trend affecting smaller firms who’ll merge to provide comprehensive services to their existing clients and to share expenses. • Firms that Barely Survive—At the end of this economic cycle, I’m concerned that far too many attorneys will have virtually nothing left . • Firms that Thrive—A few, select attorneys will use our country’s current economic downturn to reposition themselves, increase their market share, and attract top talent who were let go by other firms. In every crisis, lies opportunity. In Part 1 of this series, we’ll cover several specific steps you can take to recession-proof your practice and turn this into an opportunity for your firm. 1. Focus on Profits—Not Just Growth. Growth is a good thing and so are revenues; however, profits are better. Don’t make the mistake of only focusing on your topline revenues. Analyze your profit margins on various services you provide. In tough economic times, you generally cannot afford to have “loss leaders”—unless you have conversion rates of at least 60 percent or more to a higher back end service. I was recently working with a small law firm generating almost $1.5M in revenues, but the profits were less than $400,000 annually. Barring the unusual, top-performing law firms should generate at least 30 to 40 percent net profits. We analyzed the law firm’s P&L statements and found their accounts receivables were extremely high, an especially dangerous situation to be in given the state of the economy. Meet with your partners and business manager to analyze your profit margins. Specifically, look at your: • Top 10 accounts—How can you serve them better? Are they obtaining legal services from other firms that you could provide? What do you need to do to convince them to send more business to your law firm? • Bottom 10 accounts—How much time do you and your staff spend on managing these accounts? Do these accounts have the potential to become at least “B” clients or should you terminate them so you can better focus on your top clients? We have oft en seen the bottom 10 (or 10 percent) of a law firm’s clients take up 30 to 50 percent of the attorney’s or staff ’s time and attention. • Services that you have used as “loss leaders”—Should you start charging a fee, even a small one, to reduce the number of “tire kickers”? Can you delegate most of the work for managing this service to either a staff member or an associate? What percent of people who use the loss leader service actually convert into a higher end/paying client? Consider significantly changing the service or eliminating it entirely unless you have at least 50 to 75 percent of people converting from the loss leader into a higher end service or you are including a service that’s perceived as having high value, but does not cost you much to provide. One of our law firm clients who works with small businesses uses in corporations as a loss leader. If you retain him to create your operating agreement and buy-sell agreement he will incorporate your new company for no additional fee, other than fees paid directly to the state. • Major services that most of your clients use—This area can make or break your law firm. If you have a handful of services that most of your clients use, how can you make those services more efficient or more valuable? For example, to make those services more efficient, consider having your staff manage parts of them. To make those services more valuable, consider offering additional services or programs that do not involve at lot of your time. • Accounts receivables—See below. 2. Focus on Cash Flow. As Bill Martin, one of my mentors, repeatedly states, “Cash flow solves a lot of problems!” I have encountered several firms lately who have made mistakes in marketing their practice because they did not have a handle on their cash flow. Pay yourself first, your staff second and your vendors third. Sit down with your accountant and go over your cash flow situation and seek their expert advice on ways you can improve it. Ask for longer payment terms from your vendors. Forgo buying that new phone system when your current one is ok. Don’t upgrade to the latest version of your soft ware program just because they added a few more bells and whistles. Cash in the points you have accumulated with your VISA rewards card for office supplies, airline miles or other commonly used item. Emphasize to your staff that invoices must be sent out on a regular basis. By delaying sending out invoices, you’re encouraging clients to delay paying you. And if you delay sending out invoices for 15 or even 30 days and your clients question or dispute the bill, you’ll negatively affect your cash flow even more. This situation can quickly spiral out of control. 3. Require Every Single Employee to either Make You Money or Save You Money. You can’t afford to have employees who are 100 percent overhead. Every single person should be able to identify at least two ways they can either save you money or make you money. I recall one of the last conversations I had with one of my former employees a few years ago was when she politely explained to me, “Stephen, I don’t make you any money; I’m pure overhead.” That attitude is fine . . . if you’re in a Fortune 500 company (her previous employer), but not in a small business. Within 30 days she was gone. Here are a few ways your employees can either save you money or make you more money: • Collect an overdue payment from a former client. • Analyze every bill you receive to check for errors; then look for ways to reduce fees. (Look especially at your cell phone bill, Yellow Page & advertising bills, and bills that do not come on a monthly basis, making them harder to track.) • Have a staff member or office manager use your VISA reward points to purchase gift cards to an office supply store. (One of my staff members did this and saved us over $600.) • Book your travel on Southwest Airlines instead of a higher priced one. (They have the best frequent flyer awards program in the industry.) • Make sure your monthly invoices go out on time. • Follow up with every prospect who has called your office for any reason in the last six months. (Most people do not follow through aft er their initial call, but the need remains.) • Create a monthly online newsletter or e-zine to keep in touch with current and former clients, prospects and referral sources. • Call your bank to get them to reverse minimum balance charges and other miscellaneous fees on your checking account. • Chase down the promised referral fee from those attorneys—better yet, have them create a written system for tracking when referrals are sent out, when cases are taken, and when the fees come in. • Schedule a luncheon with you and a potential referral partner. • Turn billable hours in more quickly so invoices can be sent out. I’ve never seen a law firm that could not improve efficiency at least 10-20%. Hold a brainstorming session with your staff on how the firm can save money or reduce expenses and then ask for volunteers who will be responsible for taking action on the items. It’s in times like these every single team member needs to be working as hard as possible to help the firm survive. Stay turned for the next issue where we will discuss more strategies to help you save money, increase your referrals, and recession proof your law practice. Stephen Fairley is CEO of The Rainmaker Institute, LLC, the nation’s largest law firm marketing company specializing in small law firms. Over 8,000 attorneys have benefited from applying their proven Rainmaker Marketing System. Stephen is a best-selling author of 10 books and a nationally recognized law firm marketing expert. He has appeared in the American Bar Association’s Journal, Harvard Management Update, Inc and Entrepreneur. To receive your FREE copy of his book “Top 10 Marketing Mistakes Attorneys Make” visit www. TheRainmakerInstitute.com or call 888-588-5891
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