Increasing your firm's profits the R.E.A.L. way

Keeping your head above water as an attorney these days requires more than just legal skills. You’ve got to sell yourself and offer better service.

Growing competition may cause a changing of the legal guard, as clubby partners are replaced by competitive business managers selling legal services.

During this turbulent time, it may benefit your firm to install a R.E.A.L. management action plan. This plan involves four major action areas:

R – Rates and realization

E – Expenditure analysis and control

A – Attorney and staff utilization

L – Leveraging all attorneys

Rates and realizations

You should conduct a sanity check on rates by asking yourself these questions:

• Are rates based on a formula of each professional’s compensation?
• Are rates adjusted at least annually?
• Do you use higher multiples for paralegals than for attorneys?

If the time isn’t charged into the engagement at established current rates, it is likely that the billing will never be increased enough to pick up the lost dollars.

Once you’ve reviewed rates, you must think about realization. Ask yourself these questions:

• Do you have a second person review all bills to brainstorm about write-downs or potential for a write-up?
• Do you screen contingent-fee cases using a second-person acceptance procedure?
• Does your billing system allow identification of service types that have lower-than-normal realization?
• Do you monitor realization on continuing clients to see which clients account for the majority of write-downs?

Expenditure analysis and control

To check this area, determine whether compensations are set at 75 percent of the going market rate with additional bonuses tied to realized billings. Also make certain that occupancy costs have been negotiated based on the current glut of office space.

Of utmost importance is whether expenditures are budgeted and negative variances investigated. Ask yourself whether fixed expenses are identified and whether you have investigated why they are fixed at that level.

Attorney and staff utilization

Billable time drives the firm’s cash flow, so this is an important area to investigate. Asking the following questions can help identify overall staff performance:

• Have you set individual goals for chargeable hours?
• Do you monitor performance by comparing output to individual and firm goals?
• Do you take action by consulting individuals who are not performing?
• Do you post an ongoing comparison to create a healthy amount of peer pressure?

Leveraging all attorneys

Your firm can increase profits by delegating many tasks to paralegals or other support staff. Train your staff to routinely delegate, but be sure to monitor delegation to identify those professionals who may be holding onto their work (and onto valuable billable time) and not delegating.

Also, save time by establishing templates for forms and checklists that are easily accessible to the paralegals on their computers.

Through careful and thorough use of the R.E.A.L. management techniques, your firm can realize a competitive and profitable existence. You may want to consider a full or partial practice management review.