Navigating Law Firm Growth Through the Four Forces of Scaling

This blog post was contributed by Trevor McCandless, CPA, MTax, Fusion CPA. Watch our webinar with Trevor to learn more. 

Growing a law firm quickly isn’t easy, but if you’re ready to expand and want to do so as fast as possible, you’ll need to focus on these key forces of scaling: 

• Finances 
• Operations 
• Human resources 
• Marketing and sales 

To scale effectively, devote significant attention and evaluation to these areas, laying out a clear plan for what can be improved, as well as a strategy for implementing these improvements. Keep reading and we’ll explain how to use each of the forces of scaling for faster, more efficient law firm growth. 

What are the most common mistakes law firms make when implementing strategies for scaling their practice? 

Some of the most common scaling-related mistakes that law firms make include: 

• Misunderstanding their financial position and obligations 
• Underestimating the effects of changes in workflow 
• Hiring too few new employees to keep up with increased client load 
• Not prioritizing marketing and sales  

Firms can avoid these mistakes by investing in solid financial practices, tools that support efficient workflows, effective hiring practices, and customized marketing strategies to spur growth.   

The four forces of scaling your law firm 

As the cornerstones of a robust legal practice, each of these forces can dramatically impact your firm’s long-term growth and success.  

1. Finances

Evaluate key financial data points/reports 

A solid financial standing is not only a foundation for long-term success—it’s a prerequisite. To make sure your firm’s cash flow is set up to support your plan, evaluate key financial data points and reports. Consider the following metrics.  

• Billing and funds collected: This metric helps identify issues with cash flow. Be sure to look at:

• Work in progress (WIP) 
• Utilization vs. realization rate 
• Accounts receivable by aging

• Practice area, partner, and case data: How do you identify the most profitable direction for your firm? Analyze your profitability by practice area and individual, plus metrics like business development costs and percentages of repeat clients and referrals. Having a handle on these metrics lets you know where to concentrate your efforts. 

• Holistic view: Along with cost analysis, assessing metrics like administrative vs. overhead cost, and fixed/contingency fee case profitability ratios, provides a window into your firm’s overall financial well-being. 

Tracking these metrics manually is time-consuming, so consider using legal-specific software that’s designed to gather the data and present it in a highly digestible format.  

The right software can instantly generate reports, saving time and effort while providing the info you need to make data-driven decisions to spur growth. 

What are the key features to look for in legal practice management software? 

A small firm pursuing growth should seek the following features in its chosen legal practice management software:  

• Platform scalability 
• Intuitive, user-friendly interfaces 
• Data security and compliance 

Your firm’s chosen software should also incorporate these essential functions:  

• Document management 
• Billing and payments 
• Automated time tracking 
• Client communication tools 

Create an end goal with financial forecasting 

To effectively implement all four scaling forces, start with an end goal in mind.  

In the case of finances, this means financial forecasting, which involves establishing two key factors (ideally with the help of your financial team): 

1. Financial goals for the firm: It doesn’t matter if you’re working toward reaching $200,000 or $10 million—either way, creating clear goals is crucial.
   
2. Timeline for achieving these goals: Although the situation can change and your timeline should be flexible, make sure to establish a realistic timeline for your goals, which can be as short as a few months or as long as several years. 

Once you’ve established these, you can work backward to identify potential issues then plan the actions to take as your firm continues to scale.  

For instance, the challenges your firm might experience while netting $600,000 in gross income may be different from those for $5 million; likewise, having ten employees poses different challenges than a team of 30.  

Take tax budgeting into account 

As your firm aims for a specific net income, factor in tax obligations, which are often a significant cash outflow. Some firms create serious financial problems for themselves by overinvesting without considering their tax obligations.  

To avoid this situation, you may want to open separate profits and tax accounts at different banks (making these funds harder to dip into). Then, establish a specific percentage for setting aside funds to settle up with the IRS—for instance, you could move 10% of all income into the tax account. 

2. Operations

To grow quickly, your firm will need to be efficient, with processes that are easy to duplicate as you hire more employees. Operational scaling requires you to develop scalable processes for every facet of your firm. To do this, follow ”track, measure, adjust” (TMA): 

• Tracking cases and projects: Who’s overseeing/documenting when cases and projects are coming in, what the target completion date is, what the deliverables are, etc.
   
• Measuring via key performance indicators (KPIs): What is the success rate of meeting internal and external deadlines?
   
• Adjusting people, processes, and systems: Take your findings back to the team and decide how your firm will improve its processes.  

Failing to establish clear processes for each department can lead to costly mistakes. For instance, a flawed hiring process makes it more likely that you’ll hire employees who are a poor fit, leading to wasted resources (think recruiters’ fees, time spent onboarding and training, etc.).   

3. Human resources

A firm’s human resources team is central to keeping its day-to-day inner operations running smoothly and efficiently. We have another acronym to guide your relationship to this force of scaling—“recruitment, training, and retention” (RTR): 

• Recruitment of new employees 
• Training, both continuous and ongoing 
• Retention of existing employees 

Regardless of the size of your firm, all three of these should be happening constantly. There’s no need to wait until you have a certain number of employees or can afford to hire someone to run this aspect of your firm’s operations. Begin establishing these important HR processes now to ensure they’re in place as your firm continues to scale. 

4. Marketing and sales

Although hiring is important to growing your firm, it’s not the be-all and end-all—growth also requires a constant flow of new business coming in the door, which means converting leads into clients.  

To support a growing firm with new clients, you’ll need to ensure your marketing efforts are effective, especially if you want it to happen at your pace (rather than through organic referrals).  

Track your spending and analyze the return on investment (ROI) for the advertising platforms you use. Identifying your most effective marketing platform(s) and reallocating your firm’s resources accordingly can significantly increase your take-home cash and benefit your bottom line. 

A consistent and informed sales and marketing approach—including monitoring the numbers—is essential to scaling fast. 

Prioritize these forces of scaling for sustainable success 

Let’s review the main recommendations we’ve outlined here: 

• Start with your end goal in mind 
• Develop clear processes 
• Continuously track and adjust your approach 

These points are essential for successfully scaling your firm. They’re all interconnected and require ongoing attention as your firm grows. 

Ready to expand your firm efficiently? Learn even more expert techniques to set up these forces for growth by watching our webinar on the subject. 

CosmoLex is legal software designed to grow with your firm 

Improve your firm’s overall efficiency with a software solution that integrates virtually every aspect of legal practice management into one intuitive application: CosmoLex.  

From billing and payments to CRM, business accounting, and even creating a professional website for your firm, CosmoLex incorporates all these functions and more into a single web-based platform.  

Schedule a one-on-one demo or sign up for a ten-day free trial of CosmoLex today.