Creating the Room to Change

I recently posted on LinkedIn about what would happen if you took a week off work, and it resonated with a lot of law firm principals. It was essentially a provocative question. Is your firm just you? If you took a holiday, does the firm still function?

So it's not surprising that the number one problem for owner-led boutique law firms is that they're owner dependent.

Firstly, welcome to the SME world. All small businesses are owner dependent, so you're in good company here. It's the default position, not the result of some personal failure.

There are a number of causes behind how owner dependent law firms are, and I could write a book on them. But I'm a person who likes to focus on solutions rather than talk about problems all day long. So instead of listing out every reason you have this problem, suffice to say that owner dependency is real, and the reasons behind it only matter to the extent they point at a solution.

Before we even start to tackle that problem, we need to create the room. You need surplus to manoeuvre, the time or the money to reinvest into the firm, so you can start making the changes that get you to the firm you actually want. That's what this week's emailer is about.

Where the room comes from

The room has to come from somewhere, and there are two places it doesn't come from.

It doesn't come from working more hours. For most principals I meet, that lever was fully spent years ago. And it doesn't come from waiting until the firm is more profitable, because the reason the firm isn't more profitable is the dependency we're trying to fix.

The way out is that in most boutique firms the surplus is already there. It's just leaking.

There are four places it leaks from. I've put them in order of speed, and they all have one thing in common. None of them ask you to take on more work.

One. Price.

This is the fastest surplus there is. It costs nothing, it consumes no capacity, and it drops straight through to the bottom line.

I'm not talking about a wholesale repricing exercise. I'm talking about the next matter that comes through the door being quoted higher than the last one. Most owners are pricing off what they charged three years ago, or off what they imagine the client will accept, which is almost always well below what that client would actually have paid. Nobody in the firm has to do anything differently for this to land. The work is the same work. The fee is just closer to what it's worth.

Two. Lockup.

This is work you have already done, sitting unbilled, and then sitting unpaid.

Every day between finishing the work and sending the bill, and every day between sending the bill and the money arriving, is money you have already earned sitting in a drawer while the overdraft charges you interest on its absence. Converting it creates cash without creating any work at all.

The practical version is unglamorous. Bill on a fixed day of the month rather than when you get to it. Don't wait for the matter to finish before you invoice. Chase debtors on a schedule instead of when the bank balance gets uncomfortable. I've seen a firm take its debtor days from 90 days to 14, and nothing about the legal work changed.

Three. Write-offs and scope creep.

This is work you are already performing and not billing for.

The extra phone call. The advice that sat outside what was quoted. The variation nobody attached a fee to. The half hour written off at the end of the month because you weren't comfortable putting it on the bill. Recovering it is invisible revenue, because the work is being done either way. The only question is whether it appears on an invoice.

The fix is at the front of the matter, not the end of it. Name the scope when you take the work on, and when the client moves outside it, say so at the time and price it then.

Four. Culling the worst work.

Somewhere in your firm there's a matter type, or a client, that costs more to service than it returns.

It's consuming the exact surplus you need to fix everything else. Dropping it frees up time and very often costs you no profit at all, because there wasn't any in it to begin with.

To find it, you have to look at what each type of matter actually returned against the hours that went into it, not at what it billed. The revenue line and the profit line tell you very different stories.

Ring-fence it

Then the most important thing after that is to ring-fence these surpluses and put them back into the firm. You can't let the surplus get quietly absorbed. You can't let drawings expand to fill the extra profit, and you can't let the spare hour get refilled with more of the same work, because demand always finds spare capacity. If you don't ring-fence it deliberately, it disappears and you're back where you started.

So say you're now earning $5k a month more than you were. Don't just take that money out as drawings. Go and hire that EA.

Say you've fired your worst client and gained 30 minutes a week. Use that time to build SOPs for the firm, or to write your judgment down on paper as guidance for your junior staff.

The point of all this

None of this is about holidays.

The week off is just the cleanest test there is of whether the firm can deliver without 100% depending on you. But you can't fix that from a standing start. Every change worth making has to be paid for in advance, in time or in money, by the one person in the firm who has the least of both. That's the real reason it never happens, and it's why the SOP weekend you blocked out in January was quietly abandoned by March. There was nothing left to fund it.

So this is the part that comes first. Find the surplus, ring-fence it, and point it at the firm rather than at yourself. Then you have something to build with.

More next Tuesday,

Gordon