Improving Law Firm Profitability with Cost Cutting Strategies
Law firms have been struggling for the past few years, losing key institutional clients, with partner defections to other law firms, and have suffered financially. With prices of goods and services rising sharply, look for ways to do it.
Insurance and Marketing Costs
Review insurance premiums as over time, insurance focus changes and reduced coverage for your firm. A good payment history secures insurance credits. Work with the provider to lower rates as possible and shop around for comparable coverage elsewhere, without skimping on coverage. The legal industry needs strong coverage, as lawsuits can cost quite a bit. Consider saving on monthly expenses to ensure funds for your business. Law firms spend on outdated marketing modes. Review annual advertising expenses, what works and what does not. Ask new clients why they chose your firm, whether online, or through word of mouth. Ensure that your website and social media presence, converts visitors into paying clients. Research firm reviews and ratings to determine how your firm is viewed when being researched.
Reduce Staff and Office Expenses
Staff costs involve major expenses as salaries and benefits eat into profits. Reducing staff members reduces service levels, ultimately causing loss of clients. Solutions include some staff members moving from full-time to freelance basis. They work more when the firm is busier and less without much work and reduces payroll taxes or benefits to independent contractors. Many firms work remotely, and tips for lawyers might help in doing some work remotely. It saves money, and downsizes office space. Rent out conference rooms if not using them regularly as unused space costs money, and renting the space brings some money.
Prudent Cash Flow Management
If caught in a cash flow trap as also profitability problems, many law firms that were profitable have failed by running low on cash. While unable to escape this paradox, by actively managing your cash flows (timing of cash intake against expenses outflow), you may minimize impact of following traps. Improve cash flow by slowing down cash outflows by ensuring payables remain unpaid until due. Many firms simply pay invoices when received, way before due date. Monitor payments and pay only when due.
Improve Financial Management
For smaller law firms, this is low priority task while servicing of clients and developing new clients, gets top priority. Financial reports and statements are treated with contempt. Analyzing financial reports, income statements and cash flow statements are important for detection of cash problems and swift corrective actions. Law firms must prepare monthly, quarterly, and annual cash flow projections as also income expenditure statements. Cash is King and law firms must improve client payment terms and cash collections by speeding the billing cycle, securing more upfront fees through initial retainers, ensure retainer replenishments. Use billing software reports to review retainer usage weekly. Billing and accounting software must detect potential delinquency and the firm must follow-up for collecting outstanding dues and even out-source accounts receivable management and collections to industry specialists. Many have huge investments in client advances. Firms that book these expenditures as assets, find these items are not reflected on income statements as expenses. This impacts cash flow. Contingency fee firms cover costs with additional working capital or line of credit.