Lawyers guilty about their profit

Friends, clients, and followers will fully appreciate that my passion is helping lawyers derive proper profits from their businesses...

After a recent blog post on the issue a couple of lawyers have approached me at social functions and wanted to chat about their theory of why lawyers have so much trouble with the issue of profit.

They both pushed the angle that many lawyers are actually embarrassed, or even feel guilty, about profiting from the labour of employees.

I have to say that my own experiences over 38 years as a lawyer lead me to concur.

Here's the conundrum in essence...

"Reasonable profit" is ok to most lawyers by definition, because it's reasonable!

It doesn't help us though because the problem is that most lawyers have no idea what "reasonable profit" means...

Well here's what it's not...the profit made in most small-medium law firms in Australasia ranges from non-existent to meagre...so we have some sort of a fence around one end of the paddock so to speak...

It's the other end that causes all the dramas...

Here's my take...most lawyers in Australasia are intrinsically egalitarian...to the extent that their management strategy is to position themselves as fellow employees of their staff...members of the same team.

It's a fairly understandable approach, and works well if you get it right (especially in team sport), but one that causes major dramas from a business perspective if you lose sight of some important fundamentals in the process.

The other employees do not own a business, with its required investments and risks, and the so-called "trade-off"...the potential for a proper profit...they can only sell their labour...as skilled as it may be!

As a principal, a lawyer buys the staff's labour to apply to the business plan, generate planned revenues, and create a margin over expenses. The principal's own labour is part of the resources purchased, for which a salary is paid or at least allotted.

The point of this exercise of being in a legal business is not to make a salary for the principals...that's very easy to obtain without all the fuss and hassle...

Cutting to the chase...one of the key reasons why many staff in law firms produce so little is that the principals are embarrassed to insist upon them doing a day's work for a day's pay...essentially because they can't look the staff in the eye knowing that if everyone on the team does a proper day's work the principals will earn a profit... Profit? "Out out damned word", to butcher Shakespeare!

Until more principals fully wake up to the monumental differences between being in business and being an employee, most small-medium law firms will continue to struggle to generate good margins, and struggle with cash flow issues, too much debt and stress, and too little fun!