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Home > Trends & Insights > The Doctor Will See You Now: Has Your Firm Had Its Annual Checkup?

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Monday, October 16, 2017

The Doctor Will See You Now: Has Your Firm Had Its Annual Checkup?


Most of us know the value of regular checkups with our doctors and dentists: It’s an opportunity to uncover small problems and address them before they become bigger ones. And it’s a chance to understand whether a certain symptom is harmless or should be investigated in more depth.

Many law firms apply this same reasoning to their clients and suggest a legal checkup of the client’s business. Reviewing a company from a legal perspective on a regular basis lets the firm and the client better anticipate and mitigate future legal issues and take steps to make sure the business continues to meet its legal obligations.     

Yet while firms help clients take these preventative legal measures, they often ignore the value of a checkup for their own business, the law firm itself. Looking at your firm from a business—and not just a legal—perspective can uncover serious issues that impact the operation of the firm.      

How healthy is your law firm business today? How strong is your business development? Is your compensation model aligned with your strategic plan? How does your profitability compare to other firms in the industry, in your practice areas, and in your geographic area? A checkup provides objective answers these critical questions. 

What the checkup should include
A health check for your law firm should be relatively easy, painless and inexpensive. Just like an annual visit to the doctor or dentist, it’s an opportunity for a high-level review and comparison to establish the relative health and fitness of your business.

A comprehensive checkup should include a review of these areas:

  • Firm strategy: What are your firm’s expectations for the business? What does your business plan look like? Do you have a succession plan? What are your plans for partner compensation?

  • Financial performance: In what condition is your business? What is your profitability and partner performance, and what are your pricing and billing rates? How is your cash flow?   

  • Overall operations: How well is your firm operating? Are your processes efficient? Are your marketing, branding and business development efforts effective? Are there issues with recruiting and retention? Does your internal infrastructure (facilities, technology and more) support your business effectively? Do you have a cybersecurity strategy in place?  What is your long-term technology plan?

  • Accounting, reporting and tax processes: How accurate and robust is your budgeting and forecasting process? Are your accounting and billing processes efficient and timely? Are you managing your partner and trust accounts properly in compliance with state bar regulations?

Compare your results
An important part of an objective checkup is comparing your firm’s health to the rest of the industry. Viewed in isolation, your firm may be satisfied with its performance and operational metrics, but when you compare your results to other firms in your practice areas and geography, you may discover that you’re not as healthy as you thought.  

That’s why your checkup needs to include benchmarking against industry norms overall, for each of your practice areas and your geography. The benchmark comparison should include everything from profitability to billing rates, compensation to utilization.  

Choose the right “doctor”
Relying on Dr. Google or your friends’ advice to self-diagnose potential health issues can lead to poor outcomes. Likewise, you shouldn’t approach your firm’s business checkup as a do-it-yourself project. It’s best to engage an expert with overall business and accounting knowledge, as well as industry expertise, to conduct your annual review.

While you’ll want to involve managing partners, the executive committee, directors, your chief financial officer, finance directors, and others in the checkup exercise, you should rely on a trusted third party to analyze and interpret your firm’s diagnostics. In addition to expertise, a third party also brings needed objectivity, a critical factor when it comes to diagnosing issues and determining their potential impact on the business. 

Don’t put it off
A health check should be painless, relatively quick and inexpensive, so there’s no reason to put one off indefinitely because of the perceived time and effort involved. Almost any time is a good time for a checkup, so if your firm hasn’t already had one this year, it’s time to get one scheduled. 

Whatever you do, don’t wait until symptoms become unmanageable to think about getting your checkup. At that point, it can be far more difficult and costly to mitigate issues or implement major changes in strategy. When it comes to your firm’s business health, prevention really is the best medicine.

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