In a tight business environment, any financial losses that can be prevented would obviously be invaluable for all firms wishing to maximise their profits. This would especially be the case for smaller practices and sole practitioners. There are obvious ways in which firms are losing money, such as clients who are unable to pay their bills for example. However, there are also less obvious, but surprisingly common ways in which firms may be inadvertently losing money. We’ll look at three ways firms are bleeding money, and how to avoid these common financial black holes.
Inaccurate tracking of billable hours
The practice of time billing is a cause of consternation not only for clients, but for lawyers as well. Research conducted by Thomson Reuters found that 56 percent of professionals surveyed self reported that they underestimated their billable hours, and that incorrect manual time keeping fell between 30-40 percent of time recording. For sole practitioners and small firms, inaccurate billable hours can have a drastic impact on already tight profit margins. Although with that being said, the Honourable Justice Carmel McLure, President of the Court of Appeal of Western Australia stated the following about legal practitioners appearing before the Court, and that their obligations to their client may not always mean being adequately compensated.
“[N]ever be satisfied with anything but the best you can do for the party to represent. Even if it means, as it almost inevitably will, that you won’t charge for all the necessary preparation time. And the preparation time is the time it takes to really come to grips with the reasons below: the framework of legal principles that apply; the legal and factual issues that arise for determination; how the law should apply to the facts and all the evidence relevant to disputed facts. And I add to that: time to contemplate, time to think… You may not be able to charge but that’s your obligation.”
Striking the balance between a legal practitioners professional duties and accurate time recording can be difficult. The Thomson Reuters research found there was a distinct lack of time analysis for fee-earners, with 21 percent of firms conducting monthly analysis, 16 percent did this every six months, 37 percent annually, and 19 percent never conducted any fee-earner time analysis.
For sole practitioners and small firms, the need for accurate time recording and billings analysis is essential in maximising profits – especially in challenging economic times.
Failing to take advantage of practice management software
Many processes can be automated, yet, a large number of firms still use manual processes. Looking at the data gleaned from the Thomson Reuters research in relation to manual processes, 41 percent of respondents took a non-automated approach to workflow management, 38 percent for legal research, 31 percent for document management, 19 percent for document production/assembly, and 37 percent for tracking billable time.
Automating practice management processes can affect the profit margins for a firm, as was noted in The Law Society of New South Wales article, Three ways law firms lose a lot of money (and how to avoid them). The article focused in particular the cost inefficiencies related to manual document production processes.
“Take document assembly; on average, taking instructions and drafting one of three types of common legal document manually takes an average of 86 minutes, meaning an automated solution could save 46 minutes, according to a 2011 study by LegalFutures. By manually producing just three documents a week, a senior solicitor could be wasting $1,350 each month in lost billable time.”
Not moving with the times and utilising new technological innovations, and moving towards the paperless office
The impact that technology has had on a number of industries has been immense, and the legal industry is by no means immune. With the growth of new technologies being utilised in law firms, it makes sense for practices to train up staff to take advantage of the technology on offer. But alas, the opposite seems to be true, with the Thomson Reuters research finding that only 11 percent of small to mid-sized firms offered any formal training to their staff, and 17 percent of those respondents admitting to not getting the most out of their workflow and research tools. Additionally, three-quarters of firms stated that this underutilisation of technology had a negative effect on time efficiency.
On top of not fully realising the technological potential at hand, the other area where firms may be losing money is in relation to not moving towards a “paperless” office. Many other industries are already making the move away from unnecessary use of paper, yet, the legal industry has been relatively slow in making that move. The shift towards a paperless office isn’t seamless and there may be some teething problems, however, the eventual benefits may be worth it, as Stuart Spicer and Hayley Weber of WRMK Lawyers in New Zealand have observed in relation to the personal experience of their firm.
“This has been an exciting and rewarding experience for us and it is only now that we have made the switch that we realise just how crazy and time consuming some of the things we were doing when we worked with so much paper.
If you get it right, you will be left wondering how you ever practiced efficiently with all those piles of paper stacked around you.”