Law: not just a profession, but also a business

April marks the start of a new financial year for many firms, and of course the start of the new tax year. It is often the time when directors or partners take a step back to review the past year and what lies ahead.

Looking back, law firms are noticing some interesting changes. For example, the 2016 NatWest financial benchmarking survey indicated an 8% increase in average charge-out rates that year, bringing the UK average to £162 per hour. In 2017, however, the hourly average dropped by £1 to £161. Only a small change, but surprising given the consistent increases in preceding years.

Charge-out rates are not the only thing decreasing either. The survey found that after five years of steady increases, average fees per fee earner dropped from £144,000 to £136,000, down 5.6%. With firms reporting an increase in fee income over all, the conclusion is that perhaps they are taking on new staff, as opposed to looking at the efficiencies of existing staff.

It is surprising how many firms focus on analysing fees earned and time recorded, rather than profit. Perhaps this is because it is simply easier to measure. However, using the right practice management and financial systems will help you see how you and your staff work now, identify inefficiencies and monitor the effect of any changes.

Having worked with many firms for so many years, it is clear to me that there are two prerequisites if a firm is to be profitable over a long period. The first is being professional and the second is being commercial.

For a law firm, being commercial starts with having budgets that set targets for the key performance indicators, and then having regular, timely and accurate management information available to all, which encourages everyone to strive constantly to find ways to work more profitably.

Improving productivity is undoubtedly the best way of increasing profitability and a few simple, comprehensive management tools can help your business to thrive.