Can You Afford the Hire

A question I often get from clients is about hiring the next lawyer and whether they should make that hire now. It is always driven by an increase in client work and the principal being too busy to take on any more work.

I have written in the past that hiring that additional lawyer may or may not be the solution to your problem.

The short version is that a new lawyer often adds problems rather than removing them, and what presents as a people problem is very often a structure problem. If you want that argument in full, I have written about it a few times: Hiring People Problem, The Growth Staffing Conundrum and People Leverage.

So take it that you have been through all of that and the hire is genuinely the right move. That leaves the second question. Can the firm afford it?

Whilst you may have an accountant, they are probably only doing your year end taxes and they don't really have a great pulse on your firm's financial position on a day to day basis. So instead of pondering this question all by yourself, here's a framework for you to work through.

1. List out your ongoing monthly fixed cash outgoings

Most of them barely change each month, which makes this the easy half of the exercise. The most common ones are:

• Salaries and wages, including your own if you take one
• Any contractor, locum or offshore support on a standing arrangement
• Office rent, outgoings and utilities
• Professional indemnity cover and business insurance
• Law Society fees and practising certificates
• Practice management software, document management and e-signing
• Microsoft 365, research and precedent libraries, AI tools
• IT support, website hosting, phones
• Accounting, bookkeeping and payroll
• Trust account audit and AML compliance
• Marketing and advertising
• Memberships, sponsorships and CPD
• Loan and overdraft repayments, interest, bank fees
• Your own drawings

Add it up. That number is what the firm has to produce every month before the business has made a cent.

2. Forecast your revenue three ways

Now the other side. You need a revenue number to put against those costs, and you should run three scenarios. 1. The bad month (Bad). 2. The historically typical month (Typical). 3. The realistically expected future month (Realistic Future).

It may feel like you need a finance background to do this. It does not. You are on the front line of your own firm. You know how the work comes in, which referrers have gone quiet, what a slow month feels like and roughly what your files are worth. That knowledge is a legitimate input. Nobody has better information about your firm than you do.

Three things to put a number against, for each of the three scenarios:

One: How much work comes in. New matters, or billable hours, whichever you think in.

Two: What that work is actually worth. Not your charge-out rate. What you end up collecting once write-offs, fixed fees that ran over and the occasional discount have done their work. If you are honest with yourself that number is lower than the rate card, and it is the one that pays salaries.

Three: When the money actually lands. Not when you record the time or raise the invoice. When it clears the bank. In some practices that gap is a few weeks. In others it is two years.

Then be realistic about each version. The bad month is not a catastrophe, it is the one you get two or three times a year, and it is there to tell you whether you would survive a bunch of them. The typical month is the one you keep having, not the good one you remember. The realistic future month is the one where you allow yourself a bit of realistic optimism. You are going to do more BD, you have some marketing ideas you intend to act on, you are expecting a rush of new work, or the staff lawyer is finally up to speed.

Then the most important part. Write down what you assumed in each of those scenarios.

Six new matters a month. An average fee of this much. Cash arriving about ninety days after the file opens etc.

An assumption you have written down is one you can check in three months. You look at it, you see straight away which one was wrong, and you still have time to do something about it. An assumption you carried in your head quietly stops being true, and you find out at the end of the year when the money has gone.

If the numbers do not clear

And if you can't comfortably clear the new hire's monthly salary in the typical and realistic future months, or a bad month would be catastrophic, then hiring someone new is not the answer.

The good news is there are a lot more levers to pull, and most of them are quicker and cheaper than a permanent salary:

• Tighten who you say yes to. Raise your minimum matter value, hold to your ideal client, refer the bad fits out (WK 49, Sales and Marketing for the Boutique Firm Owner)
• Take the non-legal work off your own desk first. An admin or EA costs a fraction of a lawyer and gives you back more hours (WK 25, Why the EA is the First Hire)
• Buy capacity variably instead of permanently. A contract lawyer paid by the matter is not a fixed cost (WK 49)
• Get the process out of your head so the team you already have can carry more of it (WK 33, Running Both Ends of the Firm)
• Adjusting prices. The fastest capacity you will ever create, and it costs nothing (WK 29, Pricing is a Clarity Problem)

Any one of those buys you time. Time is what lets you make the hire from a position of strength rather than exhaustion.

Where this leaves you

By doing this exercise, you go in knowing exactly what has to be true for it to work, and because you wrote the assumptions down, you find out within a month or two whether it is true.

You stop carrying the decision around with you for the next six months, and you stop making the biggest financial commitment in your firm on the strength of how busy you felt last Tuesday.

If you have got a hire in front of you and want to think it through out loud, grab fifteen minutes with me on Zoom. Click here to book a 15min chat.

More next Tuesday,

Gordon