Volume 19, Number 3
April/May 2002

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The Seven Basic Business Processes in a Law Office

By Paul McLaughlin

Many solo and small firm lawyers don't really have the practice management knowledge, attitudes, and skills they need to run efficient and profitable law businesses. However, it never is too late to analyze the various processes that contribute to smooth practice management and establish habits and systems that can enhance your entire law practice.
The seven basic business processes in a law office are production, marketing, personnel, finance, systems and technology, communication, and managing. In a solo firm, the practitioner wears all the hats. In a small firm, responsibility for the different processes can be shared among the firm's lawyers.
Production and marketing are the service cycle, the business process that, with billing and collecting, has the most direct impact on clients. This part of practice management covers getting the work in, getting it out, and getting paid for it. The processes involve organizing the infrastructure needed to provide services to your clients, the resources base, include personnel, finance, systems and technology, and communication. Finally, managing-in the process context-involves using these other business processes to achieve your business plan.
Most problems in a law office affect more than one business process. The decision to hire a receptionist is obviously a personnel decision but also impacts several other processes:

o Production: Will your receptionist be expected to do any work other than receptionist duties?
o Marketing: Because your receptionist will be creating first and lasting impressions of your firm in the minds of callers and people coming to your office, can the person you hire make a positive contribution to your overall marketing strategy?
o Finance: How much can you afford to pay?
o Systems and technology: Is the firm's telephone technology up to date? Does the firm have good systems in place for answering the phone, taking messages, keeping track of the whereabouts of the lawyers, and so forth?
o Communication: The receptionist serves as an information hub in a law firm. Do the candidates have excellent communication skills?

There is often tension among the seven business processes. The manager in the above example would have to decide which dimensions of the position were more important and fill the position accordingly. Factors to consider in making this decision are discussed in the following sections.

Production is organizing to get the work out. It is the practice management area that solo and small firm lawyers tend to like best because it is closely linked to their reasons for becoming lawyers.
But as a business process, production involves more than just getting the work out the door. Work must be done profitably and on time. Production can be broken down into three sub-processes
Quality control . Quality control involves everything done to make sure that the work gets done right. A law office can establish an endless number of quality-control systems, such as checklists that guide paralegals in preparing files for closings or court; rules that partners review all opinions given by the firm; document assembly systems with proven templates; and clear proofreading procedures.

Efficiency . Efficiency involves organizing work so it can be accomplished at a reasonable cost. Running an efficient law office is a constant balancing act: You must keep your costs down so your prices are reasonable, but you cannot sacrifice quality. There is no easy way to compute these competing pulls on your decision making.
Timeliness. Managing timeliness has two dimensions, file management and personal time management. File management involves keeping track of many individual files, each of which has multiple deadlines and legitimate claims to your attention. A new lawyer may manage all this information mentally, but soon there are too many things to remember, and systems such as deadline calendars and tickler files or reminder systems become imperative.
Personal time management involves developing organizational habits so you prepare yourself to arrive at appointments and court appearances on time and with everything you need. You also can arrange your schedule to allow for time to improve other areas of your practice management.

Marketing is organizing to get work in-not just any work, but the right work, work that is consistent with your practice vision. Marketing has three sub-processes.

Market research . Market research identifies the need for legal services. A viable market should offer a lawyer the following possibilities: You can perform the services; you can attract clients who need the services and can pay for them; and you can make a profitable business out of meeting these needs.
There are many ways to do market research. Of course, researchers exist to do this work for you, at a price. However, many solo and small firm lawyers can't afford to pay for market research. Less costly ways to learn about your market include asking new clients why they came to your office; having clients fill out assessment forms at the end of their matter; offering a free final half-hour so you can sit and discuss the file without the client's hearing the meter running; and networking with other businesspeople active in the market you want to enter.
Positioning . The next step is reviewing the needs identified through your market research and deciding which you can meet. To do this, review the main processes in your practice-production capability, personnel, financial resources, systems and technology resources, and communication strategies. This management review of the practice as a whole will determine whether and how you must reshape it to meet the identified needs.
Then start sending out clear messages to attract the right work-work that you want and are prepared to do-and to repel the work that is not for you. Advertising is one way to send out such messages, but it can be expensive. Other strategies that may be more effective include performing public service, serving on nonprofit boards, offering seminars, and networking.
Building relationships . In mature law practices, most work comes from repeat business and referrals from existing clients. The relationships you develop with your existing clients should encourage them to return to you with future work and to refer friends and colleagues.
The relationship between a lawyer and a client is made up of many tiny interactions. Every impression your client receives communicates something positive or negative about you and your practice and strengthens or weakens that relationship. When the sum of your interactions produces a positive attitude toward you and your firm, clients become the most important members of your marketing staff because they will come back and send their relatives and associates. Such referrals are generally successful because the clients start with a positive attitude toward you and your firm.

The goal of personnel management is to supply the hard-working, well-motivated, well-trained people every law office needs to get its work done. There are two aspects of personnel management.
Hard processes. Hard processes follow the lifecycle of an employee. They include the following:

o Analyzing positions and creating job descriptions, performance criteria, and credentials for them;
o Establishing workplace policies on issues like hours, dress codes, holidays, vacations, and employee rights;
o Recruiting, interviewing, hiring, orienting, and training;
o Supervising, evaluating, promoting, and demoting;
o Administering payroll and benefits;
o Handling grievances and disputes; and
o Disciplining and terminating.

The human resources field has a large body of academic and practical literature that discusses each of the above issues in detail, and much of it translates quite readily to the law office. Decisions made in the course of hard personnel management can form the basis of a staff policy manual that should be available to everyone in the firm.
Soft processes. Soft personnel processes have to do with motivation, inspiration, and leadership. They create passion about the mission of the firm, which helps staff perform well despite the tensions that inevitably arise when busy people work together under tight deadlines.
The most important soft personnel process is the generation of a trust between the support staff and lawyers that flows both ways. You might ask yourself the following questions to take an initial pulse of conditions at your firm:

o Do I inspire confidence?
o Am I trustworthy as an employer or supervisor?
o How do I convey my passion about the mission of the firm?
o Does my staff feel safe? Are they appreciated, cared for, and happy in their jobs?

Financial Management
Financial management deals with all the money issues in the law office.
Cash flow management. It is important to actively manage cash flow because expenses come before profit. You likely will have to spend money on capital, marketing, and overhead before you receive payment from your clients. You must carefully handle your resources to bridge this gap. One way to reduce the time between spending and collecting is by using interim and final billing policies that keep outstanding bills to a minimum-a preventive approach so accounts receivable don't get out of control. Another way to bridge the cash-flow gap is to insist on advance retainers to cover disbursements as they occur and as security for payment of your fees.
Pricing. Setting fees is one of the most difficult management tasks in a law firm. The art of setting fees involves balancing your interest in getting paid a fair and reasonable fee and your clients' interest in getting value for their money. Lawyers use five basic methods to price their work:

o Time billing
o Block and flat fees-establishing or negotiating a price for part of a file (block fee) or for the entire file (flat fee)
o Contingency fees-making the fee contingent on the outcome of the matter, usually a percentage of the recovery
o Percentage tariff-setting the fee as a percentage of the value of the transaction
o Quantum meruit-assessing the value of the work at the end of the file
Capital investment. Law firms are becoming capital-intensive businesses. Lawyers must pay for hardware and software to keep up with technological changes and pay capital costs for training staff and refining work processing systems.

Financing. The most conservative way to finance a law practice is to pay cash for everything; if the cash flow is insufficient, the owners make up the difference with capital contributions. This approach requires considerable discipline because it involves giving all other cash requirements of the practice priority over draws.
A less conservative approach would be to finance the practice through debt. Law firm borrowing can take several forms:

o Capital loans for purchasing equipment (e.g., computers), paid off over the life of the equipment
o Operating loans and revolving lines of credit offset by or secured against accounts receivable or disbursements collected when the files settle
o Credit accounts and business credit cards
o "Off-balance-sheet" financial arrangements such as equipment leases

The less conservative the firm's approach to debt, the greater the stress the firm will experience from debt issues.
Financial information systems. Solos and small firms can buy very sophisticated, user-friendly finance programs for a few hundred dollars. These programs have greatly simplified law office bookkeeping, accounting, trust accounting, and time postings.
The greatest gains have been made in financial information and planning. The solo or small firm can now easily generate financial information like aged work in progress reports; aged accounts receivable reports; summaries of billings by lawyer, area of practice, and time period; cash and credit analyses; and budget reports. Accounting programs also allow for better financial planning. Most accounting packages have a budget module that can track revenues and expenses against preset targets and advise the firm of variances.

Systems and Technology
Every well-run law office has organized and systematic ways of executing its production, marketing, personnel management, financial management, communication, and managing functions.
Systems. Systems are organizational structures that give predictability, consistency, and regularity to routine processes. They are wheels that don't need to be reinvented. A distinction can be made between substantive systems that are used in the production of legal services, such as a real estate checklist, and administrative systems for other areas of the practice, such as a check requisition procedure.
Developing and maintaining the systems required for a well-managed law practice takes a considerable investment of time and determination. To prevent the erosion of your systems, record them in a procedure manual. Developing a manual forces all parties to think objectively about how they do things and allows people to gauge whether they are meeting the standards you have set. A manual also can serve as a training tool for new staff.
Technology. Technology has had a profound effect on implementing law office systems. Areas of practice that have changed dramatically as a result of technology include production of documents using word processing and document assembly programs; timekeeping, bookkeeping, financial administration, and financial planning; client and file information, including conflict checking; deadline tracking; personal practice management and case management; online research and access to government services like incorporations and title searches; and litigation support and demonstrative evidence in court.

Everything lawyers do involves communication. All of the other business processes depend on clear, effective communication. When considering how to manage communication in your office, you should consider the many forms communication can take.
Form/content. Lawyers are usually very good about the content of their communications and do not question the importance of truth, accuracy, and thoroughness. From a business point of view, however, the form of a communication is often just as important as the content. Although a document with initialed strikeouts and amendments has the same legal standing as a clean one that was properly prepared in the first place, it may produce a negative impression on everyone who sees it. Your tone of voice and attitude also affect how people receive the content of your message.
Active/receptive . Active communication occurs when you are the communicator, as in speaking and writing. Receptive, passive communication is the result of receiving information, as in listening and reading. Lawyers need to be good at both: Good speakers are not necessarily good listeners.
Instrumental/affective. The instrumental dimension of a communication is what it accomplishes (makes a point, presents an argument, counters a position, puts a question to a witness, or advances a negotiation). The affective dimension concerns the feelings the message generates. Lawyers tend to focus attention on the instrumental dimensions of communications; we try to express ourselves as clearly and unemotionally as possible. However, every communication has an emotional, or affective, impact on its recipients. A negative emotional reaction can impair or even destroy the communication's instrumental value.
Internal/client/external. Internal communications occur among lawyers and support staff and tend to be informal. Client communications (both to the client and in front of the client) should be more formal than internal communications but less formal than external communications. External communications are communications with third parties. Some external communications, such as third-party legal opinions, settlement offers and acceptances, waivers, notices, undertakings, and trust conditions, are legally binding on the firm and its clients; these communications of course require the utmost formality.

Managing is the process of pulling the practice together into a coherent business. Managing transcends the other six processes because it gives them a framework for a unified purpose and meaning.
Much of the antipathy that lawyers feel toward managing their practices derives from confusion between management and administration. These two tasks are, in fact, quite different from each other. Management is about the "big picture," whereas administration concerns the daily functioning of the office. Effective managers must take charge of each of the following three steps.

Vision . The vision of a practice expresses its mission statement-the values and dreams that lie behind the practice. These are as varied as the proprietors who form them. Once established, the vision guides the entire practice. Management decisions are much easier when the vision is clear, because the partners can quickly dispense with alternatives that do not contribute to its fulfillment.
Planning. The next hurdle is how to make the vision real. Planning is a strategic process that links vision to action and spells out how you are going to achieve your goals. Your business plan should focus on what you need to do today, tomorrow, next week, and next month to position yourself so that you are moving in the right direction after two years, much closer to the goal after four, and, at five years, there.
Implementation. Converting your vision and plans into action is the most difficult part of implementation because it requires establishing clear priorities. Lawyers often get so wrapped up in production or marketing that they neglect the other business processes. All are critical to your firm's success.
Systems can provide a link between planning and implementation: Instead of treating a problem as a unique occurrence, establish a set of rules to enable everyone to address similar problems consistent with the firm's vision. This eliminates having to reinvent the wheel each time a solution is called for and frees up a lot of time. You never can solve all problems ahead of time, but you can be more efficient at dispatching the ones that do arise.
Vision, planning, and implementation continuously interact. Be inflexible about your vision, because it represents a five-year commitment, but take care to be infinitely flexible about its implementation. Sound management principles can help you achieve the goals you want and eliminate destructive practices that have a negative impact on your law practice and on our profession.

Paul McLaughlin is a practice management consultant, trainer, and coach. He has written and presented on a wide variety of law practice management topics. He is the author of Welcome to Reality: A New Lawyer's Guide to Success. Paul can be reached at paul@dogonit.ca.


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