Law Practice Economics - Riding Herd on Your Biggest Expenses

8/15/2016 - By Zachary Farrington

When it comes to profits, it’s not always about rainmaking … sometimes it’s about cost cutting. The reality is that reducing expenses — combined with steady or increasing revenue — results in increased profits.

Consider the three biggest expenditures at most law firms and some steps for reining them in.

1. Employees and Staff

Avoid the "slash and burn" approach to managing labor costs, which can come back to haunt the firm.

Retrain and retain. Consider transferring well-performing attorneys and staff who are able to learn new skills to growing practice areas within the firm. By retraining and retaining these employees, you will eliminate the cost of hiring new lawyers for these practice areas — and be ready to meet future demand.

Outsource. Outsourcing labor can help turn a fixed cost into a variable cost that you incur only when you need the labor. So-called “virtual assistants” — independent paralegals and administrative specialists who work online — are an offsite resource that more and more firms are utilizing. Likewise, consider contracting with per diem or of-counsel attorneys.

Affiliate. Instead of staffing up with an army of specialists, develop agreements with other firms to provide the specific expertise you need for a particular case. A litigation firm, for example, might affiliate with another firm to handle appeals instead of having to have its own appellate department.

2. Equipment and Technology

A lawyer is not a Silicon Valley software engineer, so be realistic about your IT needs.

Watch IT. A lawyer is not a Silicon Valley software engineer, so be realistic about your IT needs. Rarely does a lawyer’s work justify updating laptops every year or running out to get the absolute latest tech gadget. When computers, tablets and smartphones do need replacing, consider whether used or refurbished models will do the trick.

Beware of “equipment creep.” In a similar vein, assess whether you really need things like a dedicated fax machine. With the rise of online fax services, you can have faxes delivered straight to your e-mail inbox or access them via your smartphone.

Save on software. There are a variety of lower-cost alternatives to expensive-yet-vital software. Instead of the Microsoft Office Suite, for example, check Google Apps and OpenOffice.org for comparable and compatible products at more budget-friendly prices. Likewise, consider open source software and no-cost email management programs. You’ll also find free or low-cost substitutes for expensive case management software.

3. Office Space

Think outside the box when it comes to addressing your space needs.

Negotiate. Law firms require flexibility in their leases to accommodate changes in their space needs. If you anticipate needing to reduce your footprint at some point, it will be important to have subleasing and contraction rights built into the lease. If growth may be on the horizon, expansion and right of first refusal options are important considerations.

Pare down. Paring down office space starts with a look at what’s filling your space. For example, if you have an office crammed with filing cabinets and files, consider moving them to a secure off-site storage facility. This might enable you to downsize your office space.

Rethink. Many solo attorneys and small firms are rethinking the traditional office. Instead of an entire office, they are renting just the space they need in a shared-space arrangement.

This could mean renting available space in an existing law office or even going with an “executive suite”-type arrangement where you receive a few hours of office or conference room space and access to a receptionist or answering service. Sometimes all solo and small-firm attorneys really need is access to a conference room where they can meet clients, take depositions or hold arbitration hearings.

Go virtual. Reducing or eliminating physical office space, outsourcing essential services and utilizing the web to deliver services is the hallmark of the virtual or semi-virtual office. Virtual practices tend to work well for transactional practices where a large volume of paperwork must flow back and forth between lawyer and client. Here, the virtual practice exists primarily online, using a secure portal for sharing documents, communicating and scheduling activities.

For many law practices, boosting profitability starts with a long, hard look at expenses. With costs contained, it’s much easier to maintain or even increase profits as revenue flows in.