Not many lawyers have had extensive business management courses or training, and that’s a really unfortunate fact for those looking to run their own practice or become a managing partner of a small law firm. For lawyers who decide to hang their shingle and run their own firm, practice management is an extremely important, if not often overlooked, aspect of what they will be doing. Even the best lawyer in the courtroom runs the risk of sinking their entire practice if they don’t understand how to effectively manage their business.
Effectively managing a law firm isn’t simply about understanding the different areas of the business, but understanding how these different areas are connected and work together. When lawyers fail to maintain a strong understanding of how these different areas of a practice work together, their business is at risk of losing decisions in the courtroom, losing revenue, and even falling out of compliance with regulations.
“Over a decade of working closely with solo and small practice lawyers has allowed our experts at CosmoLex to identify five key areas that each law practice must vigilantly maintain in order to be successful.”
We’ll break down these five key areas, the Five Pillars of Legal Practice Management, so you can build your practice on a strong foundation and strive for continued growth – focusing less on business management and more on the practice of law.
Well-established time tracking, efficient billing, and effective, routine collections practices can improve a firm’s business in two impactful ways. First, firms can more easily maintain compliance by keeping accurate real time balances at the matter level. With this kind of tracking, firms can more easily realize inaccuracies and issues before they have a snowball effect and create more serious consequences for the firm. Accurate timekeeping and easy-to-understand billing practices keep your law firm on good terms with your clients and those who may review your law firm if a dispute or audit arises.
The second benefit to improving billing and collections for law firms is that it increases a firm’s ability to stay solvent. Accurate and timely billing leads to a more efficient collection process and reduces what we call “leakage” — lost funds that are never recognized because meetings, tasks, and events are never properly billed for.
To create strong best practices for these foundation items, develop a regular schedule and utilize technology as much as possible. Start with streamlining and automating your billing and collections workflows to cut back on time spent manually handling these tasks. You can set up automatic reminders to go out to clients for past-due invoices and batch invoices to send out in one click. Technology and the power of the cloud can also help you enter your billable work in real-time, letting you enter it as it occurs through an app to prevent it from slipping through the cracks.
Business accounting, or “back office accounting,” is the heart of any business. This is something that every business has, but for law firms it is handled in a very unique way. When it comes to business accounting for law firms, there are three vital components to keep in mind.
Critical Concept #1: Maintain Accuracy. There are too many firms out there who neglect to maintain their financials in real-time. These firms wait until their accountant shows up periodically to check their balances and reconcile their books. Failing to remain up to date with financials can come back to haunt you in the event of an accounting audit.
For firms who use different systems that require duplicate data entry in order to keep them up to date, such as separate billing and accounting programs, the result is a higher risk of mistakes. To reduce the odds of an error and incorrect books, try to use a program that includes both billing and accounting. Not only will this help keep your records accurate, it will also save your staff valuable time.
Critical Concept #2: Remain Compliant. Law firms are subject to many requirements that other businesses simply are not. The way invoice payments are allocated, how client costs are handled, and the management of retainers are all things that are heavily scrutinized and could very well be the end of a firm if not managed appropriately. It’s important that when running your law firm, the professional in charge of your books understands all local regulations and what must be done to stay in compliance.
This may include modifying a general business accounting program to fit the specific needs of law firms or employing a legal-specific solution that is built to handle the needs of law firms. Either way, it’s important for the lawyer to fully comprehend that at the end of the day, no matter the software or accountant in place, they are the one accountable for the law firm’s books.
Critical Concept #3: Analyze Key Metrics. Not only should your firm be keeping track of your accounting properly, but it’s important to also regularly generate and analyze reports. Financial information can help you make strategic business decisions for you firms based on data rather than gut feelings. For example, looking at your revenue by practice area can show you where there is opportunity for growth and where marketing efforts should be concentrated.
While all business must have proper back office accounting practices in place, trust accounting (referred to as IOLTA by many) is unique to the legal industry. There are few lawyers out there who don’t understand the importance of proper trust account administration, but for many proper trust management has always been a daunting task. Although it can be a complex issue, lawyers need to take the additional steps necessary to understand trust accounting inside and out. Failure to stay current and compliant can result in ethics violations and possibly even disbarment.
Why is trust accounting so important? Because, as the lawyer, you assume fiduciary responsibility for your clients. Ultimately, a lawyer, himself or herself, is fully responsible for the security and management client’s funds – even if you turn the administration over to a CPA or a bookkeeper. The “burden of proof” to show proper funds management rests squarely with your firm.
Each state does maintain their own trust accounting guidelines but here are some general guidelines all firms should follow and look for in a solution:
When it comes to event and task management for law firms there are 4 “Cs” for you to keep in mind: compliance, collection, collaboration, and cloud access.
To remain compliant, it is extremely important that all tasks and events are able to be linked to the specific legal matter they are associated with and have detailed and accurate information and notes which are easily accessible. This is particularly helpful in the event of a fee dispute, making it easy to see what work was completed rather than trying to figure out weeks or months after.
When it comes to invoicing, it’s very easy for small tasks and meetings to fall through the cracks. Events and tasks should flow automatically into your billing workflow. It’s the most important first step to making sure firms are able to collect payment for all the work you do.
Many firms are made up of multiple legal professionals and their success is dependent on efficient collaboration between multiple members of the firm. Calendar events and tasks should be shareable across the organization. This is made even more important by the rise in people working virtually from home and on the road while using a multitude of devices.
Client-focused collaboration is also essential, contributing to overall satisfaction and impacting possible referral sources. Client portals, where clients can log in to view messages, see events and tasks the firm is handling for them and access stored documents at their convenience, create a greater sense of involvement in the case. They also are an excellent way to securely send information while keeping the client up to date on their case.
One of the best ways to ensure efficient collaboration between everyone in your firm is to utilize a cloud-based application. Cloud access plays an important role in the world regardless of the industry and this is no exception for lawyers. Utilizing practice management solutions in the cloud is the only way to make sure firms keep everything up to date as it happens. Log your client meetings while meeting them on the road, set your next due date while leaving the courthouse — only cloud access gives you the freedom required to practice law in the 21st-century.
Every aspect of the practice of law will eventually end up on a document, either virtual or printed. Unfortunately, these documents tend to be spread out across multiple systems and members of the firm. To be successful, your firm needs to make sure that all documents and emails are factually accurate, completed and filed on time, retained for future reference, backed up for business continuity purposes and easily retrievable.
Successful firms are utilizing practice management software to improve how they manage their documents and emails. When choosing a practice management program to assist with document and email management, search for a solution that can:
What many law firms often fail to realize is how interdependent these different areas of their business are. It’s not enough to stand on one of these pillars and hope for the best. Imagine a group of people driving a car. One operates the gas, another the brakes, a third the steering, a fourth shifting through gears, and the fifth is navigating through the windshield to see what’s ahead. That sounds ridiculous and yet that’s how practice management works if you don’t coordinate actions among these five areas. The most successful firms have solutions in place that allow these different areas to communicate with each other.
Each practice management area might work well but if the components don’t communicate effectively with each or simply don’t communicate at all, you’ll quickly have an organizational disaster on your hands. For law firms it’s important for all case information – filing dates, tasks, billing, client costs, and trust transactions – to be associated with the appropriate client matter, ready to be accessed at any time. You shouldn’t have to look in several places to piece all the data together.
Even with today’s integrated tools that offer connections to send data from one program to another, not all necessary information is transferred between them or easy to find. Not all integrations are created equally, and you should determine what information you need and research if that’s particular integration is fulfilling your needs. You need to be able to see a big picture, 360-view of your cases and using a tool that enables you to so saves you time, creates increased efficiencies and provides higher client satisfaction.
For example, as a matter is started by your firm, the events should be placed into a workflow which schedules tasks and events on your calendar. The same calendar events that are entered into a firm’s calendar need to have a timecard created for them and then be billed to a client from a billing system. When the client receives your invoice, they should be able to easily remit payment to you online. And when you finally receive payment from your client, you must be sure that the funds are recorded to the proper accounts and the proper employees at your firm are paid. When these tasks are taking place in two, three, or four different systems, the rate for lost time, errors, and even security breaches begins to climb.
Every law practice is different. What’s right for the firm down the road may not be the best solution for you. With the variety of practice management solutions available to the market today, it’s more important than ever to do your research and find the system for you. Process each of the pillars above and consider how they fit into place at your firm.
A unified approach to practice management that embraces each of the five key areas,, will supercharge your law firm’s operations. You will get the convenience of centralized, matter-based organization, the ease of collaboration across team-focused cloud applications, and improved compliance with bar association requirements. Your practice will be in a better position to help your clients, and have a competitive advantage over firms that take a piecemeal approach to organization.