Managing a law practice can be an overwhelming task. The pressure to stay profitable and take care of your clients is high, and the costs of doing business are rising every year. If you’re not prepared for these challenges, it can lead to downsizing—or worse—going out of business altogether. This article discusses some of the top strategies to bolster your law firm finances and help keep your firm afloat during tough times so you don’t have to worry about laying off employees or closing your doors because things are too tough financially.
Analyze your law practice
The first step in determining your law firm’s financial health is to take a close look at your numbers. It’s important to know how much money you’re making and where it’s coming from, but also what you’re spending that money on—and how much of it is going toward expenses, versus how much is going toward profit. You can do this by looking at six months’ worth of bank statements, or by downloading software like QuickBooks, which will help make sense of all the numbers.
Once you have an idea of the financial picture of your law practice, focus on its strengths and weaknesses. If most clients are paying via credit card—or if most clients are paying via checks—you need an accounting system that can handle electronic payments for those payments to be processed efficiently and accurately. If most clients come from referrals by other attorneys or judges, then ask yourself whether those relationships would be better nurtured through networking events rather than advertisements for legal services.
Develop a plan to implement changes
Now that you know where your weaknesses lie, it’s time to develop a plan to implement changes. A great place to start is with a business plan. This document will outline the goals of your law firm, including how you’re going to handle business expansion and downsizing as well as how many employees are needed over the next year or so.
While developing this document, keep in mind that there will be multiple aspects of your organization that need attention: marketing, finances, staffing, and technology are just some examples of areas where changes may be needed for the firm to thrive in an increasingly competitive legal landscape.
Develop a business model for your law practice
The first step in creating a business model is to consider your goals and values. This is because, when you create a business model, you’re making choices about how you will make money. For those choices to be good ones, they must align with what’s important to you—and this may vary over time as your needs evolve and change, or even if the market changes around you.
A good way to think of it is that every decision should grow out of your core principles and values—and then be executed in such a way that makes sense given who you are as an individual.
Diversify your law practice
If the financial crisis of your firm is due to a concentration of clients that have not paid their fees, such as with small businesses, consider diversifying your client base. It may be worthwhile to find other areas of law that you can add to your practice, other services you can offer, or other ways to make money from your practice.
Change your geographic location to find more clients if possible
If you are a small firm and cannot find enough clients to make ends meet, consider changing your geographic location to find more clients. This may be difficult if you are tied to certain vendors or employees due to contracts or other factors. In that case, you need to either renegotiate those contracts or terminate them altogether. Either way, it will be worth the effort if it makes a difference in your income.
Another option is finding a niche where you can be the best at what you do and attract the right type of clientele (e.g., doctors who want help with their malpractice cases). You may also want to look into new markets like social media advertising, which can increase visibility by bringing in new leads while saving money on traditional forms of marketing such as print ads and TV commercials.
Work smarter, not harder
You may be under the impression that you can grow your law firm by working harder and longer hours, but this is a fallacy.
You need to work smarter instead of harder if you want your business to grow effectively and profitably without downsizing. That’s why having a business plan is an essential first step in growing your firm—it helps create a roadmap for success by outlining what needs to be done and how it will be done. And having a clear picture of where your company is headed can help prevent mistakes along the way that could derail its progress or cause problems later on down the road (e.g., hiring someone who doesn’t fit into the culture).
If you are just starting as a solo practitioner, it’s important to remember that your finances are the key to success. You need to make sure that you have enough money coming in each month so that your practice can continue running smoothly. Making mistakes like this can cost thousands of dollars and put your practice at risk for failure.