Volume 19, Number 3
April/May 2002
WORKSHEET
pdf document
The Seven Basic Business Processes in a Law
Office
By Paul McLaughlin
Many solo and small firm lawyers don't really have the
practice management knowledge, attitudes, and skills they need to
run efficient and profitable law businesses. However, it never is
too late to analyze the various processes that contribute to
smooth practice management and establish habits and systems that
can enhance your entire law practice.
The seven basic business processes in a law office are
production, marketing, personnel, finance, systems and
technology, communication, and managing. In a solo firm, the
practitioner wears all the hats. In a small firm, responsibility
for the different processes can be shared among the firm's
lawyers.
Production and marketing are the service cycle, the business
process that, with billing and collecting, has the most direct
impact on clients. This part of practice management covers
getting the work in, getting it out, and getting paid for it. The
processes involve organizing the infrastructure needed to provide
services to your clients, the resources base, include personnel,
finance, systems and technology, and communication. Finally,
managing-in the process context-involves using these other
business processes to achieve your business plan.
Most problems in a law office affect more than one business
process. The decision to hire a receptionist is obviously a
personnel decision but also impacts several other
processes:
o Production: Will your receptionist be expected to do any work
other than receptionist duties?
o Marketing: Because your receptionist will be creating first and
lasting impressions of your firm in the minds of callers and
people coming to your office, can the person you hire make a
positive contribution to your overall marketing strategy?
o Finance: How much can you afford to pay?
o Systems and technology: Is the firm's telephone technology up
to date? Does the firm have good systems in place for answering
the phone, taking messages, keeping track of the whereabouts of
the lawyers, and so forth?
o Communication: The receptionist serves as an information hub in
a law firm. Do the candidates have excellent communication
skills?
There is often tension among the seven business processes. The
manager in the above example would have to decide which
dimensions of the position were more important and fill the
position accordingly. Factors to consider in making this decision
are discussed in the following sections.
Production
Production is organizing to get the work out. It is the practice
management area that solo and small firm lawyers tend to like
best because it is closely linked to their reasons for becoming
lawyers.
But as a business process, production involves more than just
getting the work out the door. Work must be done profitably and
on time. Production can be broken down into three
sub-processes
.
Quality control. Quality control
involves everything done to make sure that the work gets done
right. A law office can establish an endless number of
quality-control systems, such as checklists that guide paralegals
in preparing files for closings or court; rules that partners
review all opinions given by the firm; document assembly systems
with proven templates; and clear proofreading procedures.
Efficiency. Efficiency involves
organizing work so it can be accomplished at a reasonable cost.
Running an efficient law office is a constant balancing act: You
must keep your costs down so your prices are reasonable, but you
cannot sacrifice quality. There is no easy way to compute these
competing pulls on your decision making.
Timeliness. Managing timeliness has two dimensions, file
management and personal time management. File management involves
keeping track of many individual files, each of which has
multiple deadlines and legitimate claims to your attention. A new
lawyer may manage all this information mentally, but soon there
are too many things to remember, and systems such as deadline
calendars and tickler files or reminder systems become
imperative.
Personal time management involves developing organizational
habits so you prepare yourself to arrive at appointments and
court appearances on time and with everything you need. You also
can arrange your schedule to allow for time to improve other
areas of your practice management.
Marketing
Marketing is organizing to get work in-not just any work, but the
right work, work that is consistent with your practice vision.
Marketing has three sub-processes.
Market research. Market research
identifies the need for legal services. A viable market should
offer a lawyer the following possibilities: You can perform the
services; you can attract clients who need the services and can
pay for them; and you can make a profitable business out of
meeting these needs.
There are many ways to do market research. Of course, researchers
exist to do this work for you, at a price. However, many solo and
small firm lawyers can't afford to pay for market research. Less
costly ways to learn about your market include asking new clients
why they came to your office; having clients fill out assessment
forms at the end of their matter; offering a free final half-hour
so you can sit and discuss the file without the client's hearing
the meter running; and networking with other businesspeople
active in the market you want to enter.
Positioning. The next step is reviewing
the needs identified through your market research and deciding
which you can meet. To do this, review the main processes in your
practice-production capability, personnel, financial resources,
systems and technology resources, and communication strategies.
This management review of the practice as a whole will determine
whether and how you must reshape it to meet the identified
needs.
Then start sending out clear messages to attract the right
work-work that you want and are prepared to do-and to repel the
work that is not for you. Advertising is one way to send out such
messages, but it can be expensive. Other strategies that may be
more effective include performing public service, serving on
nonprofit boards, offering seminars, and networking.
Building relationships. In mature law
practices, most work comes from repeat business and referrals
from existing clients. The relationships you develop with your
existing clients should encourage them to return to you with
future work and to refer friends and colleagues.
The relationship between a lawyer and a client is made up of many
tiny interactions. Every impression your client receives
communicates something positive or negative about you and your
practice and strengthens or weakens that relationship. When the
sum of your interactions produces a positive attitude toward you
and your firm, clients become the most important members of your
marketing staff because they will come back and send their
relatives and associates. Such referrals are generally successful
because the clients start with a positive attitude toward you and
your firm.
Personnel
The goal of personnel management is to supply the hard-working,
well-motivated, well-trained people every law office needs to get
its work done. There are two aspects of personnel
management.
Hard processes. Hard processes follow the lifecycle of an
employee. They include the following:
o Analyzing positions and creating job descriptions, performance
criteria, and credentials for them;
o Establishing workplace policies on issues like hours, dress
codes, holidays, vacations, and employee rights;
o Recruiting, interviewing, hiring, orienting, and
training;
o Supervising, evaluating, promoting, and demoting;
o Administering payroll and benefits;
o Handling grievances and disputes; and
o Disciplining and terminating.
The human resources field has a large body of academic and
practical literature that discusses each of the above issues in
detail, and much of it translates quite readily to the law
office. Decisions made in the course of hard personnel management
can form the basis of a staff policy manual that should be
available to everyone in the firm.
Soft processes. Soft personnel processes have to do with
motivation, inspiration, and leadership. They create passion
about the mission of the firm, which helps staff perform well
despite the tensions that inevitably arise when busy people work
together under tight deadlines.
The most important soft personnel process is the generation of a
trust between the support staff and lawyers that flows both ways.
You might ask yourself the following questions to take an initial
pulse of conditions at your firm:
o Do I inspire confidence?
o Am I trustworthy as an employer or supervisor?
o How do I convey my passion about the mission of the firm?
o Does my staff feel safe? Are they appreciated, cared for, and
happy in their jobs?
Financial Management
Financial management deals with all the money issues in the law
office.
Cash flow management. It is important to actively manage cash
flow because expenses come before profit. You likely will have to
spend money on capital, marketing, and overhead before you
receive payment from your clients. You must carefully handle your
resources to bridge this gap. One way to reduce the time between
spending and collecting is by using interim and final billing
policies that keep outstanding bills to a minimum-a preventive
approach so accounts receivable don't get out of control. Another
way to bridge the cash-flow gap is to insist on advance retainers
to cover disbursements as they occur and as security for payment
of your fees.
Pricing. Setting fees is one of the most difficult management
tasks in a law firm. The art of setting fees involves balancing
your interest in getting paid a fair and reasonable fee and your
clients' interest in getting value for their money. Lawyers use
five basic methods to price their work:
o Time billing
o Block and flat fees-establishing or negotiating a price for
part of a file (block fee) or for the entire file (flat
fee)
o Contingency fees-making the fee contingent on the outcome of
the matter, usually a percentage of the recovery
o Percentage tariff-setting the fee as a percentage of the value
of the transaction
o Quantum meruit-assessing the value of the work at the end of
the file
Capital investment. Law firms are becoming capital-intensive
businesses. Lawyers must pay for hardware and software to keep up
with technological changes and pay capital costs for training
staff and refining work processing systems.
Financing. The most conservative way to
finance a law practice is to pay cash for everything; if the cash
flow is insufficient, the owners make up the difference with
capital contributions. This approach requires considerable
discipline because it involves giving all other cash requirements
of the practice priority over draws.
A less conservative approach would be to finance the practice
through debt. Law firm borrowing can take several forms:
o Capital loans for purchasing equipment (e.g., computers), paid
off over the life of the equipment
o Operating loans and revolving lines of credit offset by or
secured against accounts receivable or disbursements collected
when the files settle
o Credit accounts and business credit cards
o "Off-balance-sheet" financial arrangements such as equipment
leases
The less conservative the firm's approach to debt, the greater
the stress the firm will experience from debt issues.
Financial information systems. Solos and small firms can buy very
sophisticated, user-friendly finance programs for a few hundred
dollars. These programs have greatly simplified law office
bookkeeping, accounting, trust accounting, and time
postings.
The greatest gains have been made in financial information and
planning. The solo or small firm can now easily generate
financial information like aged work in progress reports; aged
accounts receivable reports; summaries of billings by lawyer,
area of practice, and time period; cash and credit analyses; and
budget reports. Accounting programs also allow for better
financial planning. Most accounting packages have a budget module
that can track revenues and expenses against preset targets and
advise the firm of variances.
Systems and Technology
Every well-run law office has organized and systematic ways of
executing its production, marketing, personnel management,
financial management, communication, and managing
functions.
Systems. Systems are organizational structures that give
predictability, consistency, and regularity to routine processes.
They are wheels that don't need to be reinvented. A distinction
can be made between substantive systems that are used in the
production of legal services, such as a real estate checklist,
and administrative systems for other areas of the practice, such
as a check requisition procedure.
Developing and maintaining the systems required for a
well-managed law practice takes a considerable investment of time
and determination. To prevent the erosion of your systems, record
them in a procedure manual. Developing a manual forces all
parties to think objectively about how they do things and allows
people to gauge whether they are meeting the standards you have
set. A manual also can serve as a training tool for new
staff.
Technology. Technology has had a profound effect on implementing
law office systems. Areas of practice that have changed
dramatically as a result of technology include production of
documents using word processing and document assembly programs;
timekeeping, bookkeeping, financial administration, and financial
planning; client and file information, including conflict
checking; deadline tracking; personal practice management and
case management; online research and access to government
services like incorporations and title searches; and litigation
support and demonstrative evidence in court.
Communication
Everything lawyers do involves communication. All of the other
business processes depend on clear, effective communication. When
considering how to manage communication in your office, you
should consider the many forms communication can take.
Form/content. Lawyers are usually very
good about the content of their communications and do not
question the importance of truth, accuracy, and thoroughness.
From a business point of view, however, the form of a
communication is often just as important as the content. Although
a document with initialed strikeouts and amendments has the same
legal standing as a clean one that was properly prepared in the
first place, it may produce a negative impression on everyone who
sees it. Your tone of voice and attitude also affect how people
receive the content of your message.
Active/receptive. Active communication
occurs when you are the communicator, as in speaking and writing.
Receptive, passive communication is the result of receiving
information, as in listening and reading. Lawyers need to be good
at both: Good speakers are not necessarily good listeners.
Instrumental/affective. The instrumental dimension of a
communication is what it accomplishes (makes a point, presents an
argument, counters a position, puts a question to a witness, or
advances a negotiation). The affective dimension concerns the
feelings the message generates. Lawyers tend to focus attention
on the instrumental dimensions of communications; we try to
express ourselves as clearly and unemotionally as possible.
However, every communication has an emotional, or affective,
impact on its recipients. A negative emotional reaction can
impair or even destroy the communication's instrumental
value.
Internal/client/external. Internal communications occur among
lawyers and support staff and tend to be informal. Client
communications (both to the client and in front of the client)
should be more formal than internal communications but less
formal than external communications. External communications are
communications with third parties. Some external communications,
such as third-party legal opinions, settlement offers and
acceptances, waivers, notices, undertakings, and trust
conditions, are legally binding on the firm and its clients;
these communications of course require the utmost formality.
Managing
Managing is the process of pulling the practice together into a
coherent business. Managing transcends the other six processes
because it gives them a framework for a unified purpose and
meaning.
Much of the antipathy that lawyers feel toward managing their
practices derives from confusion between management and
administration. These two tasks are, in fact, quite different
from each other. Management is about the "big picture," whereas
administration concerns the daily functioning of the office.
Effective managers must take charge of each of the following
three steps.
Vision. The vision of a practice
expresses its mission statement-the values and dreams that lie
behind the practice. These are as varied as the proprietors who
form them. Once established, the vision guides the entire
practice. Management decisions are much easier when the vision is
clear, because the partners can quickly dispense with
alternatives that do not contribute to its fulfillment.
Planning. The next hurdle is how to
make the vision real. Planning is a strategic process that links
vision to action and spells out how you are going to achieve your
goals. Your business plan should focus on what you need to do
today, tomorrow, next week, and next month to position yourself
so that you are moving in the right direction after two years,
much closer to the goal after four, and, at five years,
there.
Implementation. Converting your vision
and plans into action is the most difficult part of
implementation because it requires establishing clear priorities.
Lawyers often get so wrapped up in production or marketing that
they neglect the other business processes. All are critical to
your firm's success.
Systems can provide a link between planning and implementation:
Instead of treating a problem as a unique occurrence, establish a
set of rules to enable everyone to address similar problems
consistent with the firm's vision. This eliminates having to
reinvent the wheel each time a solution is called for and frees
up a lot of time. You never can solve all problems ahead of time,
but you can be more efficient at dispatching the ones that do
arise.
Vision, planning, and implementation continuously interact. Be
inflexible about your vision, because it represents a five-year
commitment, but take care to be infinitely flexible about its
implementation. Sound management principles can help you achieve
the goals you want and eliminate destructive practices that have
a negative impact on your law practice and on our profession.
Paul McLaughlin is a practice management
consultant, trainer, and coach. He has written and presented on a
wide variety of law practice management topics. He is the author
of Welcome to Reality: A New Lawyer's Guide to Success. Paul can
be reached at paul@dogonit.ca.
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