Not long ago I participated in a fascinating exchange with a group of sole practitioners, regarding quality of life. A surprising number of lawyers expressed real reluctance about growing their firms. Some of these lawyers feared that growth would put them further behind in their professional and personal obligations; others felt that they would lose flexibility and control of their practices.
My response to these fears was simply, why? Why can’t you accept every good client and good matter that expands your practice? If you don’t want to grow your firm, then you will always be an hourly worker, fearful that your revenue will cease and your financial future jeopardized when (not if) you get sick or have personal problems. Growth is not just a life-style issue of “balance.” It is a serious economic necessity.
SMART Formula
There are both smart and foolish ways to grow. Smart growth requires planning. Every law firm is a business, and a business that grows without a clear idea of overall goals and specific strategies will wind up reflecting whatever walks in the door. Foolish growth relies on whim and serendipity—not the best paths to success. The SMART acronym describes the characteristics of a successful growth plan:
- Specific: The issue is not more money, it’s how much; not more clients, but what kind.
- Measurable: If you can’t measure your growth, you’ll never know what you’ve achieved.
- Achievable: Set near-term targets that are realistic and continually raise the bar.
- Reasonable: Don’t set yourself up for failure with unreasonable income expectations.
- Timely: Give yourself an adequate timeframe that still imparts a sense of urgency.
For a lawyer or a firm, the SMART formula helps you decide where you want to go as you grow. Once you do, there is a greater likelihood of achieving a satisfying practice … and life.
Strategic Thinking
A smart growth plan doesn’t have to be complicated. It can be as fundamental as identifying two or three desired business outcomes within a given time period, defining the behaviors necessary to achieve those outcomes, identifying whom to influence in order to get both the desired behaviors and the desired business results, and deciding how to influence them.
Such a plan is not cast in stone, just as an estate plan is not cast in stone. These are tools. A plan is a guide for the future, not a guarantor of that future. The ultimate goal of a plan is simple—to control your practice as it grows, rather than letting your practice control you.
Consider these 10 elements as part of your growth plan, and modify them for your own needs:
1. Plan your infrastructure. Your office space and equipment must match your growth plan. Determine the precise wants and needs of everyone in the firm (number of electrical outlets in each person’s space, location of data and telephone cables, proximity of copiers and fax machines to work areas, etc.). Define your office space in terms of what you can afford, which features are most critical to you, which location is most convenient for your desired clientele, and what you’re obligating yourself to before you sign the lease.
2. Plan your cash flow. Effective cash flow management often comes down to the steps any lawyer can take to get funds into the bank account as quickly as possible. Begin with more efficient and creative billing on your end, for example, by “aging” your outstanding invoices to see which have gone unpaid longest, billing one fourth of the alphabet each week to stagger incoming collections, billing on the 25th of the month so that clients receive and pay statements before month’s end, or billing right after a particularly successful outcome.
3. Plan your staff needs. Perfect employees do not exist. What you can and should try to find is the “ideal” employee—one who is competent, highly skilled, congenial and motivated to help you succeed. The starting point for your search is defining what you need, by asking yourself what you do now that could effectively be delegated, and to whom you could delegate it. Then list the characteristics of your ideal candidate, whether it’s an administrative assistant, paralegal or associate.
4. Plan your receivables. Growing firms often think financial success means rising billable hours. Their real inventory is actually the cash those hours represent. The importance of collecting the money you are owed could not be more obvious. Stipulating payment rates and terms up front is the best way to get paid. Have a policy to keep track of when clients are late in making their payments, and how to contact clients when they are late. Review your accounts receivable once a week and follow up with the dilatory clients to get them to honor their commitment to you.
5. Plan your clients. Some 80 per cent of a typical firm’s revenue is produced by 20 per cent of its clients—the large, heavy hitters. These should be the focus of your business development efforts. Understand in exact detail what you do for them, how profitable that work is, and how you can get more of it. Keep any client from exceeding 10 per cent of your total revenue to minimize loss if the client "forgets" to pay you or, worse, leaves. Avoid having too many small clients. Studies suggest that these drain your resources without providing a proportional contribution to profits.
6. Plan your credit line. To get the financing you need to accommodate growth, you must establish an ongoing relationship of trust with a bank that will meet your credit needs. That means documenting clear plans for cash and receivables management, marketing and business growth. It also means establishing your qualifications under the “Four Cs” test (character, capacity to repay, capital and collateral) and building a solid credit rating.
7. Plan your compensation. The partner or shareholder’s draw or salary should reflect your personal needs and style of living. The most sensible practice is to increase salary only as the firm’s performance produces sufficient income to do so. Never use a loan to cover staff payroll or a partnership draw—anticipated work or payments too often do not materialize on time to cover these loan payments.
8. Plan your core competency. No matter what your area of practice, it makes sense to focus on your core capabilities. The principle of outsourcing is fundamental: Do what you do best and let others (even if the work is done by another firm or contract lawyer) do what they do best, most efficiently and at least cost to both you and the client.
9. Plan your business development. The number of contacts you make will determine your growth. This goes beyond the issues of branding or marketing. Getting out into the public eye can do more than advertising alone for firm name recognition. This is the fuel for growth.
10. Plan your governance. Several factors make fast-growing law firms more susceptible to misappropriation of funds, such as part-time executive management, lack of business competency in the organization and decentralized authority to approve and sign disbursements. Make sure you institute strict procedures for opening, depositing and reconciling client checks. Review and authorize all vendor bills and sign the checks yourself—never delegate this function.
Case Study
I recently had the opportunity, through the American Bar Association’s “Life Audit” program, to help a solo practitioner devise a smart growth plan. This lawyer had built a successful practice in just three years, but felt that it was growing so rapidly that she needed to add an associate to keep up. Together, we assessed her practice and determined that the real issue was not needing more help but looking at her goals and firm structure objectively. This is what we found:
- The practice’s revenues were growing rapidly, but were still two to three times below the level that could support a full-time associate.
- The practice was not nearly as profitable as it should be because the lawyer was outsourcing too much work on a contract basis, in order to devote more time than was practical to non-billable projects and activities.
- The lawyer, on the advice of her accountant, was purchasing all her office equipment in order to get the tax deductions. What she needed to do instead was maximize her equipment leasing, in order to improve near-term profitability and cash flow.
- The lawyer needed to get past her reluctance to raise rates, and adjust them upward to reflect the good value she was providing to clients.
- The lawyer needed to shift her business development and community service focus to activities where she would interact with businesspeople who would be potential sources of new business or referrals.
Commitment to Success
For this lawyer, and ultimately for any lawyer or firm, the issue of growth came down to one question: Am I committed to my own success? For a number of clients with whom I’ve worked over the years, this is the critical issue.
Expressing “success” in relative terms such as “more revenue” or “better marketing” sets a subjective standard that is difficult to discuss, let alone achieve. The extra work and effort this requires reflects the saying posed to me by my mother many years ago: “Be careful what you ask for, you just might get it!”
Be sure that “success” is what you want and that you are willing to do what is required to reach the level of success you envision. It will come—you just have to want it and be willing to commit yourself to the process required to get it.
Edward Poll (edpoll@lawbiz.com) is a certified management consultant and coach in Los Angeles who coaches attorneys and law firms on how to deliver their services more profitably. He is the author of Attorney and Law Firm Guide to the Business of Law: Planning and Operating for Survival and Growth, 2nd ed. (ABA, 2002), Collecting Your Fee: Getting Paid from Intake to Invoice (ABA, 2003) and, most recently, Selling Your Law Practice: The Profitable Exit Strategy (LawBiz, 2005).