How to Run a Small Law Firm (and Staff) to Increase Profitability
October 11, 2022
Managing a small law firm effectively involves understanding the legal industry, how to market your legal services to your target audience, and the capabilities of your legal staff. Small firms operate much differently than large law firms in almost every aspect. In today’s post-COVID era, many lawyers permanently use online platforms to communicate with clients and handle matters, from video conferencing consultations to document portals to e-signing contracts and forms. Small law firms that do not adapt to industry changes may face limited growth.
This blog post will cover how to manage a small law firm – and how much of your success will rely on systems, processes, and technology that you develop and implement. We will explore how legal practice management software can automate and replace older and outdated processes, like manual time tracking and manual invoicing. As your small law firm grows and you bring on more legal assistants, paralegals, and attorneys, this is essential for your law practice. The cascading effect of saved time across multiple employees will offer opportunities for increased productivity and profitability.
Common Reasons Why Small Law Firms Fail
Managing a law firm isn’t easy — even if you’re successful. Law firms that have thrived as solo or small enterprises and are ready to venture into midsize law firm territory sometimes face many serious challenges. And when they’re ready to move past working with just one or two employees and venture into midsize law firm territory, they face many serious challenges, including:
Ineffective / Unproductive Team Members (Team Zero)
For law firms that want to grow from small to midsize, having a solid team is critical to making the transition. Core team members are individuals who have specialized knowledge in sales and marketing, client management/customer service, business management, and process/systems development. But because many lawyers running small law firms are so accustomed to doing everything themselves, they stumble when it’s time to put together a team that will help their law firm grow. And oftentimes, they wait until it’s too late to put together a larger and more skilled team.
No Market Knowledge
Once a small law firm attempts to compete on the same level as midsize law firms, they are competing with more experienced lawyers with deeper pockets. Generally, these better-resourced law firms fully understand the market. When it comes to running a small law firm, many lawyers are targeting clients simply based on guts, hunches, intuition, and a very cursory knowledge of exactly what the market for their legal services wants and needs. Failure to research market dynamics and focus on niche offerings may make it difficult to successfully transition from a small law firm to a midsize law firm. Don’t forget the second part of the old “Jack of All Trades” saying: “Master of None”.
The systems, processes, and technology used by midsize law firms can be very different from what’s used by a solo or small law firm. Many small law firms patch together systems, processes, and technology when there are only one or two employees, but once they begin to hire more people this can lead to mass inefficiencies or even chaos. With legal practice management software, you can replace multiple systems with one and manage your law firm more efficiently. When technology is outdated and cumbersome, this can have a huge cascading effect when 10 employees are involved instead of just two.
Even if you are in a competitive market, you don’t have to compete for the same cases. For example, a lawyer fresh out of law school who decides to start a solo practice as a “New York City Personal Injury Lawyer” may struggle to get cases because the time and money it takes to get organic and PPC search traffic is insurmountable. However, if you focus your efforts on the hyper local (small geographical area) of New York City where your office is located, and market yourself as an expert on specialized types of injury cases, you may be able to generate some traffic.
Lack of Management Skills
If you forget your law firm is a business, you can drive yourself into the ground. Hiring the right people to work and manage your firm will allow you to focus on the most important tasks. Some small law firms do not hire a manager and make costly mistakes such as missing billable hours opportunities, handling matters for a flat fee when you could bill hourly, and not raising rates when you should. Over months and years, management mistakes can be costly and even drive you out of business.
Developing Systems and Processes
What Is a Process?
A process is a system for completing a task that can be done the same way repeatedly. When law firms are small (or solo law firm), they often have few formal “systems” in place. And because there are few formal systems in place, each employee may have developed their own system. When they leave no one may be aware that the system works and/or they may be unable to use the system.
This might go unnoticed at a firm with two or three people, however, when law firms grow from small to midsize, there’s a huge risk in allowing every employee to create their own system for every task because failing to establish formal systems in a midsize law firm can create inefficiencies and reduce productivity.
It’s important to realize that every task you complete at your law firm needs a process. You need a process for tracking associates’ time. You need a process for tracking client/attorney communication. You need a process for billing your clients. All of these tasks are things that are done over and over by employees in your law firm, and when you grow from small to midsize, you need a process that everyone can use so that you can get uniform results.
For example, the last thing you want is 20 different associates submitting their time-tracking in 20 different formats. This same principle applies to all legal tasks and workflows at your law firm. If you want to successfully grow from a small law firm to a midsized, you must seek out process and system solutions that work for your law firm. Most case management software offers turnkey systems and processes for many of the everyday law firm tasks — legal time tracking software, calendaring software for law firms, legal billing software, legal document automation, assembly, and more.
In the case of time tracking, Smokeball automatically tracks your associates’ and paralegals’ time while they’re working on a matter within the system so that the associate doesn’t have to spend time manually tracking activity and can focus on other tasks. Today’s technology is here to help establish intuitive systems and processes and each software offers different features that may or may not benefit you. This is why it is worth taking the time to research and write out “5 Questions to Ask in Your Software Demo”.
How Processes Help Your Firm Grow
Efficient processes can help your law firm increase productivity and profits, and they can help you keep valuable employees from leaving because they don’t feel overwhelmed or unorganized. No one wants to work at a law firm that has inefficient or nonsensical processes if they don’t have to. Let’s take a closer look at what implementing strong systems and processes can do for your law firm:
- Save time on repetitive tasks. There are many repetitive tasks that can be automated to a certain extent, such as document assembly. Law firms hiring new staff should take advantage of law firm software that automatically populates client and matter data into necessary documents so that associates don’t have to manually do it.
- Reduce errors with automation. Anytime an associate or assistant is tasked with repetitively doing something, the chance of an error being introduced increases significantly. Whether it’s a simple typo or something more obvious like submitting the wrong document, implementing the right processes, with the right systems, leads to fewer mistakes.
- Allow you to delegate repetitive but important tasks to other employees. Once you have simplified a process for completing a task, sometimes you can hand off that simple task to others. This saves you money. And using a case management system allows you to track and assign tasks, set reminders, and keep everything tied together in one place.
- Make it easy to train employees on existing systems. Once you begin to expand beyond two employees, having effective processes in place make it easier to train new hires. For example, Smokeball has an award-winning onboarding process that makes it easy to master the many helpful features.
If a law firm is growing from small to midsize, implementing strong systems and processes BEFORE hiring new employees and expanding services is critical to having a successful transition. Failure to implement strong systems and processes could cause you to lose money because new employees are too busy trying to create their own processes and/or they’re using inefficient ways to get things done.
Choosing the Right Pricing Model for Your Law Firm
It’s not just about being busy and having work to do. How you price and offer your small law firm services affects how many clients can afford your services. If you price too low, you may be very busy, but your law firm may struggle financially. If you price too high, you may struggle to intake clients. Much of your pricing considerations will be based on your geographic location and your competition. The following are some considerations for pricing your legal services:
Consider Payment Plans and Subscription Models
You likely have a number of monthly subscriptions in your personal or professional life. Fee structure models that provide you with monthly income and simultaneously offer pricing consistency for your client can be a win-win. BNPL (Buy Now, Pay Later) is available for legal expenses and depending on the type of legal services you offer, maybe a smart offering. With an online presence, it may be possible for you to represent and meet with clients in your state that are farther than an easy car ride away – expanding your geographic area. With subscription models and payment plans, your client pool can grow because you are more affordable to more prospective clients.
Use Fixed Fee Billing Only Where Appropriate
Many lawyers move to a flat fee system to accommodate or appease clients who are adverse to hourly billing models. Many people believe a lawyer who bills hourly will hit them with colossal legal bills that will bankrupt them. Your legal services should be priced fairly – and this includes fees for the attorneys. A flat fee appeals to the client, but as an attorney, you must consider whether you are selling your experience and education short by agreeing to handle matters for less than you should. There is a place for flat fee services – such as basic prenup agreements, standard will, and trust packages. However, if you are opening the door to countless emails, calls, and consultations, proceed with extreme caution.
Be Cautious with Discounts / Reducing Prices
Chances are you know of online stores or brick-and-mortar retail shops where you can always find a coupon or discount. When these are available, regular customers are hesitant to visit them without getting the available discount. Lowering the price of your legal services once can set you up for constantly being asked to do so. Even worse, it can cause your clients to solely focus on the price they are paying for services rather than the value of the legal services you provide. Even if you go far above and beyond with your representation, your existing clients will want to make sure they are getting their special price and will tell referrals to ask for the discount as well.
Building a Strong Legal Technology Foundation with the Right Legal Practice Management Software
Small law firms transitioning to midsize often have an outdated technology infrastructure that’s badly in need of an upgrade. However, it can be challenging for law firms to make this technology transition while also growing and focusing on their business. Because technology is so important to our daily life, there are a few best practices every transitioning law firm should take into account to build a strong technology foundation.
Take Inventory of Your Needs
Before you purchase your next software tool, take stock of your law firm’s needs as you transition from a small firm to a midsize one. Ask these questions:
- How many law firm employees will you have? Once you expand beyond one or two employees, you need software solutions that are scalable and that make it easy to train each employee. Case management software like Smokeball is designed to work well with companies that are small and big so there’s no problem scaling up when necessary. And with award-winning legal tech support with free training and a dedicated account manager, you and your staff will know how to use the software.
- How many locations? The last thing any growing law firm wants to do is juggle multiple documents on a physical drive. And if you have more than one location, your important documents, and other information should be easily accessible from anywhere; paper files are not ideal for this and many other reasons. This is why using software tools that leverage cloud technology to securely store your data is a smart move, especially as you transition to a midsize law firm. Smokeball is secure cloud-based practice management software that stores your data so that you can access it from anywhere — another office location, while you’re in the courtroom, or while you’re on the go — and you have unlimited storage so you’ll never run out of space.
- What type of invoicing system do you need? As your law firm grows from a small practice to a midsize one, dealing with multiple cases and clients simultaneously can make invoicing manually a cumbersome and time-consuming process. But Smokeball attorney billing software uses invoicing systems that are fully integrated into the time-tracking system making it easier for law firms to issue accurate and timely invoices to clients without the process eating up too much time. Also, if you haven’t already been offering to take credit cards or set up payment plans through our legal software integrations with LawPay and more! As a business scales and you’re working with more and more clients, being able to offer payment options could ultimately impact if they choose to hire you.
- What kind of time-tracking system do you need? If your growing law firm is using an antiquated, manual time-tracking system, it’s time to make a change. With Smokeball, you will never have to start and stop multiple timers with our automatic lawyer time tracking software. Now that you’re managing staff, you’re going to need to know how they are spending their time, what they are billing for and where they can improve and increase billable hours. Midsize law firms that depend on manual time-tracking systems can become bogged down in handling too much paperwork and dealing with errors. This is why the automatic time and activity tracking in Smokeball makes it easy to track what your staff is working on because it’s all done automatically and all tied back and saved to the matter. This means that there are fewer errors and less time lost due to misplaced time-tracking notes — which means more billable hours and revenue for your business.
- How will you use calendaring and task management systems? As a law firm grows, there must be an easy way to maintain legal calendars and give everyone at the firm access to that information. Smokeball’s legal calendar has a week, work week, and month views as well as a timeline. Once an event is in the calendar, you can see that specific matter and access the entire client file from any calendar event. Plus, you have full visibility in your staff’s calendar, so you can stay in the loop on everything at your firm.
- How are your current systems benefiting/failing? If there are systems currently working for your law firm, you need to choose software that has robust integration capabilities so you can continue using something familiar and comfortable. Smokeball connects to dozens of software solutions such as Microsoft Word, Microsoft Outlook, LawPay, Quickbooks, and more.
For small law firms that are expanding and making the leap into the midsize arena, building a strong technology foundation with adaptable software that can grow with you is critical.
Law Firm Recruitment and Hiring
As your law firm grows from small to midsized, there are some key ways that you will need to adapt your hiring and recruiting strategies.
Focus on Talent
Small law firms typically focus most of their energy on growing the number and quality of clients. But as a law firm grows, it will need to shift some of that focus to hiring more quality associates who can take on the increased number of cases coming through the door. Having the right number of quality associates on your team will be a key factor in determining if you can successfully transition to a midsized law firm. Having a robust team will allow you to take on larger cases that bring in more revenue but also require a lot more people to handle the matter.
For both small and midsized law firms, the best source for high-quality new hires is employee referrals. However, as a law firm grows it is compelled to depend on outside sources to help it fill staffing needs. This is when quality can suffer if the candidate sources are not thoroughly vetted. Reach out to other lawyers for recommendations on which recruiters, job boards, and professional organizations/networks are the best sources for finding quality people. At this stage, there are many benefits to working with an experienced legal recruiter who has an existing network of potential candidates in your practice area.
Good Law Firm Marketing & Branding
Once you begin to seek out candidates for your growing law firm, you must remember that you will also be judged on your firm’s brand, image, and reputation. Make sure that your branding material, such as your law firm website and social media, has clear and accurate information about why it’s a good place to work for lawyers and other legal professionals. You may even want to include quotes from former employees or links to reviews left by former employees on a third-party site if most of those reviews are positive.
Compensation is one of the primary deciding factors in whether someone wants to work with your law firm. As you grow from small to midsized, you must do your research about compensation packages offered by competitors. What are other law firms in your practice area and region offering associates and support staff? Can you top it? Or, can you at least match it? If you find it difficult to match or top prevailing compensation packages in your practice area and region, think about how you can offer other incentives that may be just as enticing such as extra paid time off or other perks like being able to work remotely since you’ll have access to all your firm files with your lawyer mobile app and legal case management software.
Training Law Firm Staff
Training your employees is one of the most important parts of successfully scaling up from a small law firm to a midsized one. But what often happens is that both trainers and trainees become frustrated in transitioning because too many assumptions are made about a new hire’s knowledge, and training sessions are not structured in a way that is pace appropriate. That’s why there are a few common mistakes transitioning law firms should avoid and a few best practices they should adopt.
Mistake #1 – Focusing Only on the ‘how’
Too many transitioning law firms focus on how to train new employees but fail to convey to their new hires why they are learning something and how that knowledge will help them do their jobs.
Best Practice #1 – Focus on the ‘How’ and ‘Why’
When you begin training your new employees, focus on conveying to them why they should learn a new system or process and let them know why that knowledge is important to do their jobs effectively. This ‘why’ is necessary for buy-in from your legal team and critical to your firm’s success.
Mistake #2 – Cramming in Too Much Information
Too many small law firms transitioning to midsize fail to give their new hires enough time to learn new information. They may try to give information all at once and/or they may expect that new hires completely understand the information in too short of a time.
Best Practice #2 – Pace Yourself
When you’re training new hires, give them at least 30 days to learn new information and 90 days to effectively implement it. Keep in mind that it can take longer for some people to master a system or process. Have patience and don’t do it all alone.
Mistake #3 – Not Having Proper Support
Many small law firms have partners who wear many hats including the trainer hat. This simply won’t work as you transition to a midsized law firm. There’s no way that partners or associates have the time or knowledge to train new hires on everything they need to know to do their jobs.
Best Practice #3 – Have a Dedicated Trainer Who Can Help Onboard New Hires
And when you buy a new technology solution such as case management software, make sure that the company offers training support. Smokeball offers dedicated account management and award-winning client support with onboarding and training so your new hires can work with your Smokeball team to learn the software and systems (which means you can focus on practicing law).
Mistake #4 – Failing to Improve
Making the leap from having no training process to having a basic training process is so huge and difficult that some transitioning law firms may stop there. This is a mistake because training processes are living systems that must evolve as needs change.
Best Practice #4 – Get Feedback and Change When Necessary
Always get feedback from new hires about their training experience with your law firm and implement changes based on what they’ve said. If you can implement a comprehensive and effective training process, you can reduce new hire frustration and turnover so that you can effectively transition to a midsized law firm. And when it comes to your law firm software, let Smokeball help train your new employees on your case management software.
Law Firm Risk Management for Small Law Firms
Generally speaking, small law firms are more likely to take reckless risks and still survive, while midsized law firms who take the same risks face disastrous consequences. This is because small law firms have less risk and more flexibility to recover from mistakes. However, once a law firm begins to transition from being small to midsized, it will need to implement effective risk management strategies so that all business decisions can be properly vetted to ensure that they benefit the firm and don’t put them in an unnecessarily risky position. Let’s take a look at two primary areas that transitioning law firms should consider — capacity and customer need.
One of the main benefits of becoming a midsized law firm is that it allows you to take on larger (and more profitable) cases – and compete with larger law firms. There are some cases that smaller law firms can’t handle because of the matter’s complexity and the amount of manpower the matter requires. However, as transitioning law firms take on larger cases, they need to assess the profitability of those cases and their capacity to take on the larger cases without jeopardizing the rest of their business. In other words, can your law firm expand your capacity in a way that allows you to maintain your current clients and take on newer and more profitable ones?
Some law firms transition from small to midsize because they want to begin serving clients in a profitable practice area. However, midsized law firms expanding into new practice areas must do a serious assessment of the real customer demand for any services they’re offering. Is the practice area really booming? What kind of services are the customers looking for and at what price point? Will serving this customer need allow you to do so in a way that is beneficial to the client and your law firm’s profit line? Looking at quality data, you must take the time to determine if your plan to serve certain customers is as profitable as you think it is.
Achieving profitability as a law firm transitioning from small to midsized requires you to properly assess risk in a data-driven way. But don’t try to do this without the assistance of professional tools such as Smokeball’s law firm insights which track the performance and profitability of your law firm by taking into account all of your staff’s time and activities whether the work is time billed, fixed fee, or contingency.
When a law firm decides to grow from small to midsized, it isn’t just about getting big, it’s about increasing profitability. But law firms that want to successfully make that transition must consider how the way they do business today will impact their firm’s change.
How will they change the way they recruit, hire and train new employees? And how will they implement effective systems, processes, and technology solutions so that they can professionally and efficiently service new clients while not getting bogged down with time-tracking, invoicing, and overall case management systems that won’t work for a law firm that has more than a few employees?
Ultimately, if a law firm wants to grow and stay profitable, it must use the tools, strategies, systems, and processes that work for a larger firm.
Final Thoughts on How to Manage a Small Law Firm
You are not the first to manage a small law firm. Even though your firm has many unique aspects and elements that separate you from your competitors, the processes and tasks you perform share many common fundamentals. Whether your goal is to scale up and grow your small law firm or stay the same size, using practice management software allows you to develop systems and automate processes. Smokeball is the legal tech you need: robust practice management software that understands and meets small and growing law firms’ needs.
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