Generally speaking small law firms are more likely to take reckless risks and still survive while midsized law firm who take the same risks face disastrous consequences. This is because small law firms have less to risk and have more flexibility to recover from mistakes. However, once a law firm begins to transition from a small firm to midsized, they 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. There are some cases that small 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 to 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 tracks 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.