Legal service is a business. Run it that way.
For most law firms, September signals a kickoff for the rest of the business year.
Some law firms have instituted a four-day-in-the-office, return-to-work schedule and will deal with the repercussions while others will remain fully flexible and remote-friendly. Hard charging capitalists will say, “We’ve been in the office every day since it’s been possible to do so and some of us never left.”
While the working world has changed and will continue to evolve with ferocious speed and consequences – Artificial Intelligence, I’m looking at you – the fourth quarter in law firms remains much the same as it always has: madness and maddening.
Madness due to a dearth of business acumen and training, and maddening because of a lack of financial rigour around billing and collection.
Incredulity was my first reaction while reading Big Law in September Will Raise Volume on Billing and Collections Push. This article explores how law firms’ ability to bill and collect before year end impacts revenues and profitability, and that management often has to ask for pledges, provide presentations, and go door-to-door to motivate lawyers to do it. My second reaction was dismay that, in this day and age, law firm management continues to engage in wheedling, cajoling, and carrot-and-stick persuasion tactics.
For the love of all that’s holy, what century are we in? Why does this practice persist? Is it a factor of the damnable “we’ve always done it this way” mentality? Do lawyers not understand that legal service is a business?
If the definition of insanity is doing the same thing repeatedly and expecting different results, then the all-consuming billing and collection push that happens within many law firms during the fourth quarter is a prime example of lunacy.
Fourth Quarter Madness
It’s said that in football, games are won or lost in the fourth quarter. And that in business, the fourth quarter can make or break your year.
But neither statement is true when strong game plans and business principles are in place, and individuals, teams, and management are dedicated to success and held responsible for outcomes.
Accrued losses in football are not tolerated and usually met with being benched, traded, or fired. Comparatively, accrued losses in law firms are often met with precious little in the way of repercussions that can range from a dismissive shrug to a talking-to.
However, an upshot of the traditional fourth quarter frenzy of billing like crazy while trying to collect monies owing before year end can create needless pressure that results in stress for lawyers and clients, and can damage lawyer-client-law firm relationships.
Run Like a Business
This is why business training and management coaching must be instituted in law firms so that they are better able to – guess what? – run like a business all year long rather than ratchet up stress levels and potentially risk teetering into failure at or after year end.
Part of the problem is that being a lawyer doesn’t always equate to being business smart or management savvy.
Years ago, I was aghast when overhearing a senior business lawyer at a national law firm ask, “What does ‘variance’ mean?”
Monthly measurement of budget against actual, determining variance, and financial forecasting are basic business practices not taught in law schools that prefer to focus on the practice rather than the business of law. And even though business training is provided in other industries, it is not instituted within most law firms or within the legal industry at large.
It is very concerning when lawyers lack education in commerce, especially since many of them deal with corporate matters for clients without having a solid grounding – never mind proven experience – in basic business practices and principles.
September Equals Strategy
In addition to billing like your life depends on it and politely haranguing clients to pay up before year end, September also signals budget season that can begin as early as August and slog through various death-by-a-thousand-cuts approval stages until the end of November or even mid-December.
Budgets seem to be where most law firms start the annual planning process. This is shortsighted and just plain wrong.
Business strategy is the correct starting point.
Business strategy and/or review needs to happen every year because – if we’ve learned anything since the global pandemic shutdown in March 2020 – the world can change in an instant and what was true 12 months ago may not be true now, or in the future.
This is why any business strategy done two to five years ago is null and void.
The world – and legal service – is changing so fast that strategy on which your business is based must be true to what is happening now and may happen in a span of 12 to 18 months, not two to five years.
Since early September, I have been working on business strategy with a number of law firm clients using methods predicated on successes that are applicable to the legal service sector.
Prior to entering the legal industry, I spent 17 years in the corporate environment working with and successfully turning around private and publicly listed companies. Three qualifications were essential: 1) Visionary market insight; 2) Astute business acumen; and 3) The ability to chip the beaver off a Canadian nickel.
As a result, my macro strategy development structure goes like this:
Corporate growth objectives with a fixed strategy and measurable profit goals are job one.
Once corporate growth objectives are in place, the annual business strategy is built as a support structure. This means setting business strategies that are reinforced by smart as well as stretch tactics set on strict monthly and quarterly timelines.
Budgets are built to support the business strategy. Outcomes are measured monthly via variance reporting because knowing where ever nickel is spent or will be is critical to financial forecasting and execution of deliverables.
Accountability for success of the structure and enforcement of results are an expectation. Tight diligence to the process and its steps enables reaching and often exceeding growth objectives.
While every law firm’s situation is unique with objectives, strategies and tactics that require customization, this is the outline of my proven strategy development method.
It’s tough, gritty and exacting. I’ve used it forever because it works every time.
Profitability is Paramount
Business is about profit margins and return on capital investment that enables further and future growth. It is not a fixation on top line revenue, nor is there such as thing as neutral. If profits remain flat, you are falling behind. Without swift course correction, your business will slide and then spiral downward.
This happened to a number of law firms during the pandemic. Now, due to concerns such as stalled deals, uncollected fees, and write-downs, it’s fair to expect that there will be law firms that fall into financial distress. This will manifest in restructuring and mergers at best, and failures at worst.
This is why training lawyers on strong business and financial practices, instituting regular billing cycles and rigorous financial hygiene, and providing crystal-clear directives with accountabilities for success along with repercussions for failure enables better business for law firms, clients, and the legal service market as a whole.
The Bottom Line
With evolutionary changes to how, why, and where we work, now is when law firms worldwide have a golden opportunity to reinvent themselves and their business practices in order to position for better long term solvency and cumulative growth.
So, my bottom line and best advice: Legal service is a business. Smarten up and run it that way.
Heather Suttie is an internationally recognized legal market strategy and management consultant to leaders of premier law firms and legal service providers worldwide.
For 25 years, she has accelerated performance within law firms and legal service businesses — Global to Solo | BigLaw to NewLaw — by providing consultative direction on legal business strategy, market strategy, management strategy, and client strategy. The result is a distinctive one-of-one legal market position and sustained competitive advantage culminating in greater market share, revenue and profits.