This article is by Nora Rock, corporate writer/policy analyst at LAWPRO.
How was business in 2012?
- I’m not sure…
If you answered 2 or 3, this post is for you.
To do: Resolve to improve your financial management skills in 2013.
We’ll deal with #3 first: If you don’t know what your financial results were for the year, you’re not on top of your practice finances. There’s a correlation between well-managed finances and financial success. Also, financial management and practice management exercise similar mental muscles. Roll up your sleeves and do some number crunches.
If you’re looking for resources to help you brush up, practicePRO offers the free download of its booklet “Managing the finances of your practice”. This booklet provides a comprehensive review of various steps you can take to better manage the finances of your practice, both at the start-up stage, and when your practice is well established. It also highlights some of the longer-term financial planning issues you should consider in preparation for the day you wind-up your practice.
To do: Set a financial goal for 2013.
If you know what you earned in 2012, but you’re not sure whether that number amounts to “success”, it may be that you neglected, at the beginning of the year, to set a financial goal for yourself. It’s easy to pretend that your success or lack thereof is dependent on factors outside your control, like what types of matters happen to come through the door. But you know this isn’t true. Every successful business needs a goal. Consider what you earned this year, the factors that contributed to that number, and the extent to which you can influence those factors. Then set a goal for next year.
To do: Bill monthly, or at least more regularly, in 2013.
If you answered #2, are your billings up-to-date? No? Then bill. Every matter.
There are various reasons why lawyers fail to send regular or timely accounts, but the result is often the same: Problems collecting. Clients know they have committed to pay you. They are expecting your bills. In general, clients prefer regular, manageable bills over big fat surprises. Consider billing every matter monthly; if that’s not realistic for your type of practice, bill AT LEAST quarterly. If there is nothing to bill on a matter, send a progress report.
The end-of-year bill/progress report should be given special attention, and you can assist your financial analysis efforts by collecting these reports (either by saving copies of the individual letters, or incorporating the contents of the letters into a master spreadsheet). That way, you’ll have an organized overview of the status of your practice.
To do: I will analyze my financial performance in 2012 and identify changes to make in 2013.
If you’re not satisfied with your revenue for the year, take the time for a detailed year-end review. One aspect of that review should be an analysis of your revenue patterns. Which kinds of files are profitable for you? Are there types of retainers you might avoid next year (for example, does a certain kind of file require travel to a distant tribunal and attendant travel costs that clients resist reimbursing?)
You should also take the time, once a year, to think about your rates. How do your rates compare to those of your competition? What will the market bear? What might you do – obtain special training, delegate tasks to juniors, improve efficiency – to justify a rate increase?
On the topic of efficiency, are you estimating your time accurately? Accurate advance estimation of work required on a matter permits good communication to clients about money, and good communication about money helps you get paid.
Are you overspending on disbursements? YOU view your fees and disbursements as separate items, but both bills come out of the client’s one wallet. Controlling disbursement costs will make clients happier about paying your fees.
To do: I will feel good about being well-compensated for excellent service.
Finally, think about your attitude toward money. As thick-skinned as we often believe we are, many of us can’t help but internalize certain tired old stereotypes, like the lawyer-as-greedy-predator. Unless you actually ARE a greedy predator, get over it. If you provide a quality service, you are entitled to be paid a fair price. Failing to charge a reasonable price for your services puts your business at risk. Broke lawyers can be dangerous lawyers. Run your business like a business. This doesn’t mean you need to turn down every modest-dollar file or refuse to contemplate pro bono work, it means you need to budget your time effectively so that you can be both profitable and charitable.
Here’s to a (financially) successful 2013!