Reflecting on 25 years consulting to the Legal Profession in
Australasia at the end of March I unfortunately returned yet again to the
resignation that not nearly enough has changed. In the vast bulk of the
Profession business practices are simply not improving quickly enough.
The same old mistakes are being made, and plenty of new
wheels “invented” with demonstrably flat sides!
This is consigning the Principals in the huge majority of
firms to poor returns for their efforts and investment.
The conventional wisdom that prevailed for decades that
there would be no room for small law firms, and that major aggregation trends
would persist because small law firm practitioners would otherwise not survive,
has proven to be plain wrong.
However, as I address later, the point is not mere
“survival”.
The structure of the Profession varies of course between
jurisdictions, but the last published statistics on the make-up of the New
South Wales profession (January 2013 for 2012) are instructive, and very
relevant to the issue of business-like practice management.
It doesn’t take much experience or imagination to realise
that most firms with 5 or more principals can be expected to have reasonable
management, strategies, and systems.
Unfortunately for the Profession as a whole, those firms
make up only 2.1% of all firms in the New South Wales example!
There 97.9% of firms have between 1 and 4 principals, with
87% of all firms being Sole Practitioner firms. Those Sole Practitioners employ
2323 lawyers, an average of just half an employee lawyer per firm,
demonstrating that a huge number of Sole Practitioners are just that in the
wider sense of the term, genuinely “flying solo”.
The challenge for Sole Practitioners, and indeed for all
small law firms, is to get to grips with the key business issues that make a
real difference to moving well beyond mere survival.
The majority of such firms have Principals who do want
decent incomes, good succession options, reduced borrowings and cash flow
stress, professional satisfaction, and some real fun in business.
There is no doubt that there are a lot of balls to keep in
the air in running a small legal practice, but that’s the challenge facing
about 98% of the Profession, and the answer is to truly understand what the
important issues are and attend to them consistently in the right priority.
When I talk to practitioners from small firms in my
seminars, workshops, and, in particular in Regional Law Society meetings, there
is a constant refrain along the lines of the fact that it’s hard to get the
balance right between looking after clients and running the firm.
Of course that’s unavoidably true, and is the root cause of
most of the resulting problems, as Principals simply do not get the balance
right often enough.
They have not done a proper analysis of what is truly
important, including getting help from outside the practice, and thus not
established suitable plans to attack the challenges in a focussed and consistent
manner.
Cash flow issues are not fully understood, which is not
surprising when they aren’t in much bigger firms all too often either!
Marketing isn’t given sufficient importance, leading to an
absence of appropriate fee-paying work in the zone where Principals can finally
make a proper profit for themselves above their proper salary. Barely keeping
the doors open, and earning the equivalent of a poor salary, cannot be
considered success, and makes it nigh on impossible to build a firm that is
around for the long haul.
The statistics continue to show that returns for Principals
in small firms are paltry indeed, and this has to sap confidence and reduce
self-esteem, two vital ingredients in managing a law firm well.
Pricing is usually handled very badly, with erratic
practices at best, and work is regularly conducted at fee levels that will not
even cover expenses.
Throughput of work is not monitored carefully, and far too
much focus is placed on short-term billings results and short-term cash flow
ebbs and flows. There is not adequate attention to underlying production levels
to protect profit margins and ensure cash flow is adequate, if credit control
is commercial while remaining professional.
Engagement Management and Credit Control are often honoured
in the breach, so an appearance of being busy camouflages the upcoming profit
and cash flow problems.
Firms are generally under-capitalised, so shoestring
strategies are operated when more investment, properly applied, is clearly
needed. Because the fundamentals are usually so very wrong, these firms seldom
trade into significantly better financial positions over time.
Above all, insufficient attention is given to personal time
management, so appropriate time to gain the skill sets needed to address the
key problems is perceived to not be available. Practitioners need to vigorously
segment quality time for their different challenges, to assist in ensuring they
at least do not drop the red balls, or know they have, and can pick them up
quickly, when they do!
My observation is that most Law Societies are trying to
address the issue of better practice management education of Principals of
small firms, and have been for some time, but there isn’t yet much evidence of
a lot of traction being obtained.
I also observe too much teaching that is not practical or
grounded deeply in common sense, so basic skill sets that other lawyers
successfully apply every day can be brought to bear by a much enlarged group.
What should be heartening for small firm Principals to hear
is that if they get to grips with the real issues, and persistently address
them, there is no systemic, inherent, reason why small practices cannot be
profitable.
Indeed, in my first quarter century of consulting experience,
involving 1223 small-medium firms, those with one or two principals, doing the
right things pretty consistently, can be by far the most profitable firms in
the whole Profession.
You do not need to be lucky, in the right place at the right
time, or blessed with a practice full of ideal clients, to thoroughly enjoy a
career in the Profession as a Principal.
Rob Knowsley LL.B MIMC
Principal Consultant…Knowsley Management Services (KMS)
1 May 2013
