If you want to lift law firm profits at your law firm, I suggest that you focus on improving revenue rather than reducing costs.
When you think about it, if your goal is to lift law firm profits, how do you do that?
You can’t actually just lift profit, because profit is an outcome of your revenue less expenses.
So in order to lift profits you need to lift revenue or cut costs, or a bit of both.
As an accountant, I would watch many clients (not just law firms principals) go through their firms profit and loss statement and immediately focus on expenses.
Accountants woke up early on that accounting fees starts with A, so they quickly learnt to code accounting fees as Professional Fees – Accounting, which starts with P.
As a consequence something like Advertising or Bank Fees would be the first expense to appear in the list of overheads.
The client would then focus on say the bank fees and go into a tirade about how much the bank charged and what a rip off they were.
Now while probably true, even if the bank fees could be reduced to NIL, the profit that the business was making was often still woefully low.
Most small business owners, including law firm principals, tend to be quite good at managing expenses. This means that if you were to spend a few hours focusing on cutting expenses, for many firms this will result in little or no savings.
You may for example decide to cut out the chocolate biscuits at morning tea and the biggest complainers will be the principals themselves, until within a few weeks the chocolate biscuits have returned.
If you were to devote this same energy to focusing on how to lift revenue however, you are likely to achieve a much better return for your efforts.
When you think about it, if you cut expenses there must be a limit to what you can cut. With revenue however, there potentially is no limit. You could potentially double your revenue, but you are unlikely to halve your expenses.
Clearly I am not implying that you ignore expenses completely. That would be crazy.
Most law firm principals however are time poor. I’m sure you can relate to that yourself.
If you only have so many hours to devote to working “On” your business, it pays to spend them on something that will give you maximum return.
For most firms, that will be to focus on growing revenue.
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