You’ve risen into the management ranks of your firm, which means you are now a leader. Among the tests you face, others in the firm will be watching to see whether the proper handling of financial matters is an important priority for you. So, are you up to the challenge?
When you agree to put your hand on the tiller of your firm, you assume new responsibilities regarding the firm’s direction, including strategic planning, technology choices, client selection and, yes, financial controls. It’s a lot to handle at once. To begin, you might take the advice of the late Norman Vincent Peale, originator of the theory of positive thinking: “Formulate and stamp indelibly on your mind a mental picture of yourself as succeeding. Hold this picture tenaciously. Never permit it to fade. Your mind will seek to develop the picture…. Do not build up obstacles in your imagination.”
So then, if a picture is worth 1,000 words, what does the mental picture that you’re holding say about how management of the firm—and particularly its financial matters—should be approached? For one thing, if you really want to handle these matters successfully, you need to cultivate a leader’s approach. What does that mean?
In his excellent book
The Successful Lawyer: Powerful Strategies for Transforming Your Practice (ABA, 2006), Gerald Riskin illustrates how consistently increasing your value to the firm and your clients is one of the single most important things any lawyer can do to retain existing business and build new business. But what does it take to increase your value to the firm in the context of being a financial leader? Although Riskin doesn’t speak about leadership in financial terms, the information he provides on leadership styles, particularly which styles are the most beneficial in the long run, is easily adapted to the law firm financial arena.
When most lawyers think of effective leadership styles, they probably think about leading by example. This is often important but, Riskin points out, leading by example alone has a couple of drawbacks. First, if your style differs dramatically from that of those you hope to lead, they may view your example as impossible to emulate. Second, if you fail to hold to the standards you espouse, those you are leading may decide that they are entitled to exert less effort in financial areas themselves.
Riskin defines the most effective type of leader as someone who provides direction and is able to obtain good levels of performance from the other members of the team. In particular, this means putting emphasis on coaching others to perform at levels higher than they themselves otherwise thought they were capable of achieving. With this definition in mind, you can provide exceptional financial leadership within your firm by establishing achievable financial goals, developing good financial habits for yourself and your team, and then doing everything you can to help your team members—whether they be partners, associates, paralegals or support staff—to meet those goals. Here’s what it will take.
Invest in Knowing the Numbers
Your firm’s compensation system may not reward the time you devote to financial analysis. Nonetheless, if you want to ensure the firm is heading in the right direction, it’s always in your best interest to spend some “unpaid” time to regularly review the firm’s financial reports. After all, you won’t know whether to expect success if you don’t understand the financial reporting system and what it reveals about the state of your business.
Just about all practice management advisors (including us) recommend that firms, regardless of their size or composition, produce a “key statistics” report. If your firm doesn’t already produce this report, then take the initiative by preparing one yourself—which means pulling key data from the existing reports in your system into one simple “dashboard” or overview report. In this way, you’ll get a bird’s eye view of financial trends within the firm.
There are a number of things the statistics may reveal. For example, is work-in-process (WIP) increasing or decreasing? Increasing WIP can be a signal of a financial problem in the same way that high blood pressure can be a signal of a health problem. Perhaps bills aren’t being sent on a timely basis. Or maybe the firm has acquired a few tough-to-deal-with clients and lawyers are reluctant to bill these clients. Whatever the cause, once your data reveals there’s a problem, you gain the opportunity to pinpoint its source and develop appropriate solutions.
Here’s another top example of an area to watch: Is a larger and larger percentage of accounts receivable (A/R) moving into the over-90-days column? Maybe the firm has fallen down on intake and the results are finally beginning to show. Or perhaps dissatisfied clients are sending a message about failure in services by withholding payment. Either way, ever increasingly old A/R is a red flag that someone needs to be contacting these clients, determining the source of the problem, helping to solve the problem, and then reinforcing the firm’s payment expectations. And it is your job to ensure those things get done. Which just goes to illustrate why it’s so important for you to become highly knowledgeable about the firm’s financial reports.
In addition, once you develop a good understanding of the reports your firm regularly produces, you’ll be in a much better position to understand how your compensation system focuses people’s attention on certain goals—or not. In other words, how the firm monetarily “rewards” given activities tends to communicate to your people which goals are truly important to the firm and which ones—even though officially stated—are tacitly ignored or only given lip service. Our advice is that you strive to develop a Pavlovian sense for how the behavior that you see in your firm may be directly related to the compensation system and what your financial reports reveal. This will help you determine whether simply changing what you measure, report on and reward can direct your financial ship into more profitable waters.
Devote Time to Training Others
Often it’s far too easy for legal professionals to slip on properly recording their time and associated billing details—and that’s especially true for new lawyers and paralegals. After all, substantive law takes precedence over all other considerations during the legal training process. In your management role, though, it’s your job to provide direction, guidance and support across all areas that affect the success of the entire team. So be sure to set aside some time each day to work a bit with the lawyers and other timekeepers under your supervision to reinforce performance standards and goals.
In the financial context, that reinforcement includes the need to create bills that provide clients with information about what legal services have been provided, and how they’re better off as a result of your firm’s services. Another task for you is to encourage your timekeepers to learn as much as possible about the technologies—such as case or practice management software, time and billing programs, and PDA functionalities—that will help them capture and bill more time. Whenever possible, present a good example in your own time and billing activities by doing the following:
- Creating thorough, contemporaneous time entries for all your work
- Reviewing and returning your bills promptly to staff so that they can be sent out in a timely way
- Billing on a regular schedule
- Facing tough problems with A/R rather than setting them aside for later
Don’t forget that your role as a leader is to (gently) nudge everyone to meet the standards that you are promulgating. And remember, too, that the failure to capture just
one hour per day per timekeeper quickly adds up. With 231 workdays per year, this represents 231 billable hours at, let’s say, $250 per hour, which totals $57,750 per year that goes unbilled by a negligent timekeeper. If you have 10 such timekeepers in your firm, then you are leaking well over a half-million dollars a year!
Think in Terms of Positive Reinforcement
As a firm manager, you need to look at how time is being spent—but before you consider bringing down the hammer on a timekeeper who isn’t meeting billable-hours goals, check to see where the nonbillable time is going. If it’s being devoted to appropriate activities that move the team as a whole forward, you might want to rethink the compensation system! Bringing the compensation system into alignment with
all the tasks that are important to move the firm forward—and not just the tasks that result in big fee dollars—is just one way that you can invest in yourself and those around you to create dynamic skills that will benefit the entire firm over the long haul. As we all know, there is much “grunge work” that has to be done quietly and effectively, in addition to the glamorous files.
Ultimately some activities cannot be measured in dollars, but many such activities can nonetheless contribute substantially to the bottom line. Understanding this will be extremely valuable as you steer your firm into the future. Just remember, financial leadership doesn’t have to be complicated, but you do have to consistently devote time and energy to it—if you want to convey to others in the firm that the goals and actions you propose are the profitable things to do.