How Do You Profit Your Firm?
How Do You Profit Your Firm?
Dec 23 2010, 11:54 AM
Joined: 17-July 09
Member No.: 125
If Oscar Wilde’s famous definition of a cynic – “someone who knows the cost of everything and the value of nothing” – is true, then many associates may need a dose of cynicism when assessing where they stand in their firms. Not the superficially cynical “why don’t they appreciate how much I do?,” but the far more realistically cynical “what am I worth to them?” If you haven’t asked the question, the answer might surprise you.
Leverage is the financial reason for hiring and using associates as a cost-effective way to do billable work in a team setting while boosting partner profitability. Leverage is only effective when associates are effective and it is profitable for the firm to keep using them. While associates may not earn more than they cost the firm at the start of their careers, at some point that situation must change
What should firms expect from their young lawyers to justify keeping them? The fundamental question in this regard is obvious: is there enough work? In analyzing an associate’s worth to the firm there is no formulaic expression that specifically depends on origination, billing or collection. To say that an attorney is worth the amount of profit due to billing or the amount of profit due to business brought in does not take into account the subjective factors that should be considered. For example, does the lawyer’s combination of skill and attitude demonstrate potential for career growth beyond the immediate level of business? And skills mean both knowledge of the law and the ability to understand “The Business of Law”®.
This latter point leads to analysis of the associate’s profitability, which is something different from worth to the firm. All associates can determine their own personal balance sheet if they plug in the right numbers. This is what they need to know:
With this information associates can compute the net profit that they provide to the firm: Billings - [Associate's Total Compensation + Direct and Indirect Expenses] = Net Profit.
The net is the profit available resulting from an associate's effort. Generally within three to years of hiring, associates should become net profit contributors. The associate's responsibility is to do the work assigned in the most effective and efficient way possible and in the shortest amount of time. Fulfilling this responsibility in a way that produces net profits for the firm is essential for an associate to grow a career at a given firm.
This bottom line figure is the reason (how good is open to debate) why firms terminate associates that they presumably had good reason to hire in the first place, but subsequently decide they can’t afford. The better solution comes in two parts. Firms should only hire an associate when needed, hiring the right person the first time for the right job. And associates should understand how to grow a career by assessing the value they provide in terms of their profitability performance. Profitable associates are the ones that every firm wants to keep.
Check out Ed on YouTube
Follow Ed on Twitter
Join the LawBiz Forum
Become a fan of Ed's on Facebook
Ed's Latest Book, Published by WEST ®
Growing Your Law Practice in Tough Times
By Edward Poll
Following the worst economic crisis since the Great Depression, and facing a sea change in clients' demands and expectations, law firms must respond and adapt quickly and effectively. Law firms must choose the kind of law practice they will be; the marketing and business development tactics they will use; the overhead that is critical to their functioning; how to price, bill and collect for services; and how to manage the cash flow cycle. Success lies in identifying and capturing the right kinds of clients, providing the services those clients need in ways that add value, and ensuring prompt payment and the ability to grow profits. This book, based on the experiences of the author and his clients over 20 years of coaching and consulting, provides the keys to successfully thriving in the new era.
Special New Release Price: $79
Regular Price: $120
Call or Order Online at:
1-800-837-5880 or www.lawbiz.com
2010 LawBiz® Management. All rights reserved.
|Lo-Fi Version||Time is now: 25th May 2013 - 02:34 PM|