Evaluating and managing costs: trimming fat from small firms.With the legal profession still feeling the effects of the recession, controlling and cutting expenses continue to be hot issues. The survival skills of small firms are being severely tested. Plaintiff firms in particular need to understand not only where their money goes but also how to separate luxuries from necessities. The cost of doing business tends to be significantly higher among plaintiff firms that in other practice areas. Before plaintiff firms rush to cut expenses, however, they should evaluate how and why their costs are what they are. After analyzing costs, trimming the right ones should not significantly alter the way attorney's attract and serve clients. Generally, three major cost categories comprise more than 70 percent of a law firm's operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. : wages and benefits (excluding partner compensation), occupancy, (including rent), and professional liability insurance. A fourth significant cost in plaintiff firms is the litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. expense on behalf of clients. The following are some cost factors to evaluate in each of these categories. * Wages and benefits. Historically, plaintiff firms have employed one secretary for each lawyer. By increasing the use of computers for document production, calendaring, docketing, and other clerical and case-management chores, many of these firms have implemented secretarial-sharing arrangements. A decrease in secretarial support often requires an increase in administrative support (filing, photocopying photocopying, process whereby written or printed matter is directly copied by photographic techniques. Generally, photocopying is practical when just a few copies of an original are needed. When many copies are required, printing processes are more economical. ), but a file clerk's salary is significantly lower than the salary of an experienced litigation secretary. Some plaintiff firms pay their staffs a relatively low monthly, salary but give substantial semiannual Semiannual An event that occurs twice in a calendar year. Notes: A bond with semiannual coupons would issue payment once every six months. See also: Annual, Bond, Coupon Bond or annual bonuses. This can help ease a firm's cash flow because of the decreased salary and tax contributions. However, if the firm asks an employee to take less on a monthly basis, the employee's annual income including bonuses will have to be higher than average to compensate for sharing the risk. Staff members should be cross-trained so they, are able to help each other with heavy workloads and tight deadlines. Firms should also evaluate the cost of hiring part-time staff on an hourly basis, particularly during intense work periods. Most plaintiff firms make good use of paralegals. These staff members can do much of the research required in plaintiffs' cases, and their cost to the firm is lower than that of a lawyer. In some firms, lower-value cases (for example, those under $20,000) are prepared by paralegals under lawyer supervision. Lawyers remain responsible for settlement discussions. Health insurance is one of the few fringe-benefit costs over which the firm may have control. Few firms pay for dependent coverage, and many firms are asking for some copayment co·pay·ment n. A fixed fee that subscribers to a medical plan must pay for their use of specific medical services covered by the plan. copayment, n on monthly premiums. In fact, most firms now have policies with higher deductibles as a means of cutting their insurance costs. Moving to a preferred provider organization pre·ferred provider organization n. Abbr. PPO A medical insurance plan in which members receive more coverage if they choose health care providers approved by or affiliated with the plan. or health maintenance organization or health care may generate additional savings. * Occupancy. Unless the firm is in a position to renegotiate re·ne·go·ti·ate tr.v. re·ne·go·ti·at·ed, re·ne·go·ti·at·ing, re·ne·go·ti·ates 1. To negotiate anew. 2. To revise the terms of (a contract) so as to limit or regain excess profits gained by the contractor. a lease or to sublease sublease n. the lease of all or a portion of premises by a tenant who has leased the premises from the owner. A sublease may be prohibited by the original lease, or require written permission from the owner. unused space, there is little a firm can do about occupancy costs Occupancy costs are the whole life costs of buildings and their associated land from occupancy until disposal. These costs may be incurred on a regular or irregular basis. Occupancy costs are those costs related to occupying a space including; rent, real estate taxes, personal . (See Harvey Kleinman, Relocate or Renegotiate Your Office Space, TRIAL, April 1992, at 68.) Plaintiff firms generally need more conference rooms, secretarial stations, and document-and-evidence storage capacity than general practice firms. Plaintiff firms also retain closed files for a long time, often requiring off-site storage. Office space may be available at a lower cost per square foot, but the cost of moving is always higher than budgeted. Some equipment, furniture, and furnishings and all stationery and marketing materials will have to be replaced. If the firm is in a position to sign a new lease, it should negotiate concessions - such as free rent in return for costly improvements undertaken by the tenant - that were not available a few years ago. * Professional liability insurance. The only way to keep these premiums low is to operate a claim-free practice. Some insurance companies offer a discount if the law firm uses a computerized calendar or docket system. The premise is that there is less chance for error when using automatic software programs. Other insurance companies may offer a discount based on the length of time the firm has been with them. The cost of coverage will almost certainly be based on the number of claims within the last three years. There are three keys to reducing the risk of malpractice malpractice, failure to provide professional services with the skill usually exhibited by responsible and careful members of the profession, resulting in injury, loss, or damage to the party contracting those services. : expertise in the type of case being handled, excellent client-relation skills, and determination to meet every deadline as though your career depends on it. * Litigation expenses. Reducing costs advanced on behalf of clients requires planning and budgeting litigation procedures. For example, discovery done at the last minute costs more. A careful early review of the facts of a case can help a law firm predict the amount of discovery that will be necessary and develop a realistic estimate of out-of-pocket expenses out-of-pocket expenses n. moneys paid directly for necessary items by a contractor, trustee, executor, administrator or any person responsible to cover expenses not detailed by agreement. . This may changer Changer The name given to a clearing member that is willing to assume the opposite position of a futures contract within a larger alternative exchange, of which it also is a clearing member. as the facts and evidence develop, but it gives the firm a starting point Noun 1. starting point - earliest limiting point terminus a quo commencement, get-go, offset, outset, showtime, starting time, beginning, start, kickoff, first - the time at which something is supposed to begin; "they got an early start"; "she knew from the for a budget. Many firms spend extraordinary amounts in messenger and express charges because their lawyers act only on immediate deadlines. Planning and timely preparation can save money. To help phase out last-minute actions, some law firms This list of the world's largest law firms by revenue is taken from The Lawyer and The American Lawyer and is ordered by 2006 revenue:[1]
Advances for client expenses should not include loans to a client for rent, car repairs, and the like. A firm should have a policy against making loans to clients. If a loan seems absolutely necessary, some bar associations do allow lawyers to lend money, but only if there is a written promise to repay. * Other costs. Fresh flowers, meals paid for by the firm, retreats and planning sessions, club memberships, and mileage reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. should all be reviewed for possible cost trimming. The cost of interest for using a line of credit or other means of financing may not be attributed directly to litigation expenses advanced on behalf of clients, but plaintiff firms tend to borrow more funds than others. Some firms make it a practice to retain a higher level of earnings in the operating account to help finance these and other costs of doing business in slow times. This is accomplished by retaining part of the income generated by a major win. The retained income becomes part of the capital account but is available for use during lean times. Profits are distributed to owners of the firm only after appropriate bonuses are made to associates and staff and other critical expenses are paid. Costs Not to Cut No matter how tempting, cuts should not be made in certain areas. These include the following expenses: * Marketing. For many, plaintiff firms, marketing means advertising - television, billboard, and yellow pages. These are often very costly items, but they have been proved to be successful. The firm should, of course, carefully measure the success of any marketing effort. For example, firms should track the source of new business (referrals, advertising, former clients). An excellent measurement tool is a written referral-source survey. By asking referral sources - former clients, friends, political contacts, other lawyers - why they refer clients, a firm can measure the effectiveness of various marketing methods and assess the referral sources' perceptions about the quality of the firm's service. Similar information can be gathered through a short written survey given to clients at the end of a case. This survey should include questions about the client's level of satisfaction with the services provided. The end-of-matter survey itself can be used as a marketing tool. Firms must avoid the temptation to cut costs by reducing marketing efforts. Difficult economic times may require more marketing - not less. * Technology. Off-the-shelf software is emerging for calendaring and docketing, case management, and document management. Software packages are essential for developing letters and forms, for keeping cases moving, and for remaining competitive. Small firms can compete technically with larger ones because the cost of purchasing technology is now affordable. When purchasing equipment or software, firms should be careful not to skimp skimp v. skimped, skimp·ing, skimps v.tr. 1. To deal with hastily, carelessly, or with poor material: concentrated on reelection, skimping other matters. 2. on the investment for e mployee training, in order to ensure that all of the capabilities of the equipment or software are fully utilized. * Training. A well-balanced training program can help develop skills and improve staff productivity. While continuing legal education The purpose of continuing legal education is to maintain or sharpen the skills of licensed attorneys and judges. Accredited courses examine new areas of the law or review basic practice and trial principles. programs are needed, training in other business and lawyering skills such as financial analysis, negotiation, delegation, and client presentations is just as important. This is especially true for attorneys and paralegals in plaintiff firms, because they often have much more direct contact with clients. Cutbacks here could undermine the long-term quality of legal services legal services n. the work performed by a lawyer for a client. . Measuring and Controlling Costs Planning for expenses requires a budget. Comparing actual performance with budget projections, year-to-date and previous year-to-date, is also necessary. Most general-ledger software packages can provide side-by-side columns for this comparison. Budgeting for litigation costs advanced on behalf of clients may be difficult to estimate, but it can be accomplished if the firm carefully reviews case strategy. The expense budget should be based on previous experience and careful projections for the budget period. Information like salary for new hires, projected raises, and bonuses must be considered. When monthly projections fluctuate considerably, the partners should discuss the reasons. Cash flow in a plaintiff firm may be like a roller coaster What a bad CD-R disc is often called. See CD-R and underrun. ride - way up or way down. A monthly cash-flow statement is critical because it focuses on two important questions: How much cash is needed to cover monthly fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). ? and How much extra cash is needed to fund disbursements? The firm must compare actual cash flow with budgeted cash-flow projections monthly. Comparing current monthly and year-to-date cash-flow statements (budget v. actual) can provide early, warning signals that indicate potential short-falls in time to take corrective measures. [TABULAR tab·u·lar adj. 1. Having a plane surface; flat. 2. Organized as a table or list. 3. Calculated by means of a table. tabular resembling a table. DATA OMITTED] Managing a plaintiff firm and keeping it afloat require vision, determination, a degree of altruism altruism (ăl`tr  ĭz`əm), concept in philosophy and psychology that holds that the interests of others, rather than of the self, can motivate an individual. , excellent business skills, and a
clear picture of the firm's cash flow. The fun part of practice for
most trial lawyers is the challenge of the trial, but creating a more
businesslike busi·ness·like adj. 1. Showing or having characteristics advantageous to or of use in business; methodical and systematic. 2. Purposeful; earnest. 3. environment help ensure that the environment will help ensure that the practice continues. Carole Jordan Dame Carole Jordan, DBE, FRS, FInstP, (born 19 July 1941) was the first ever female president of the Royal Astronomical Society. She was also only the third female recipient of its Gold Medal (in 2005, following Caroline Herschel in 1828 and Vera Rubin in 1996). Jake Krocheski are management consultants for Hildebrandt, Inc., Jordan in San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden and Krocheski in Dallas. |
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