Welcome to
the December 1999 issue of “KMS ProfitPower Tips For Lawyers™”…
1999 has
been another strong year for the economy. That makes nine years of unbroken
growth. In the good news there is an inherent warning. If you aren't doing well
now what excuses do you have?
There are
some big issues coming up which will put unusual management pressures on you.
Even if you are totally "Y2K ready", don't count on all your
clients and suppliers being able to avoid problems which can flow on to you.
The introduction
of the GST and the big changes to the Tax system generally will cause many
businesses to have cashflow problems…the NZ experience was that many were
pushed right over the edge. CashFlow management is already one of the things we
see done relatively poorly in legal firms.
The
messages for you?
Get
aggressive on collection of Debtors now… so you are strong when any
disruptive influences hit.
Don't extend
credit unnecessarily…be even more commercial than you have in the past.
Implement,
and monitor carefully, a good cashflow projection so you know what to expect if
the key indicators vary negatively from your models.
Here's to
a very satisfying and prosperous year for you in 2000!
I trust
you and your family have a very safe and enjoyable Christmas/New Year.
Feature Article…
What proportion of the day your staff are paid for do you expect them to actually work for you?
Amazingly, it appears that there is a wide variety of
responses to the question contained in the headline to this article.
In chatting to a group of lawyers recently about what could
be expected from various people I stressed that each person had to be looked at
as an individual, and that the starting point was the amount of time per day
that a solicitor, for example, could be expected to give to you on average… for
their base rate of remuneration.
I explained that you then had to look at the things you
would be expecting the solicitor to do for the firm, rather than for the
firm’s clients, and try to get an average capable of being projected on a daily
basis, and then confirmed over time through accurate and full time recording.
I gave an example of a particular firm which clearly
communicated to its solicitors from the outset that it expected input of a
total of 45 hours per week minimum for the base remuneration, and that based on
accurate time recording over a number of years the majority of the solicitors
who were not heavily involved in other practice activities did not require more
than an hour a day on average throughout the year, or 230 hours annually, to do
the various non client (or at least non directly client) activities such as
continuing legal education, marketing, precedent development etc.
When I pointed out that this meant that there were on
average 8 hours a day left for the solicitors to work on client files one of
the senior solicitors present, in fact a managing partner of a substantial
firm, remarked, “Gee, that’s a bit steep”.
I reiterated my point that if the firm is paying base
remuneration based on 35 hours, 40 hours, 45 hours, 50 hours, 55 hours or
whatever, by agreement with the lawyers, then the amount of client time
available for any one individual will be
simply an exercise in deducting the firm time required from the total time
invested.
It really isn’t a matter of looking at what people may have
achieved in the past so much as applying simple logic to the facts of the proposed
situation for each team member.
The proof is in the pudding!
Numerous firms which have perfectly happy solicitors have those solicitors
working on client files in excess of 7 hours a day… from 8 hour days or 9 hour
days in total. It is absolutely not
necessary for an efficient operator to work a 12 hour day to achieve 7 billable…unless
someone has mucked up the individual's WorkPlan™ and created unreasonable
expectations of what is required!
In fact, most people tend to waste large parts of every day,
and this can be tested in a fairly simple or practical way.
Ask the people involved to work a series of half days,
mornings, and see the chargeable units that they create in the half day. It is almost universal that they will go
close to creating in a half day the chargeable units that they would normally
create in a full day!
For example, if somebody comes in at 8 and works till 1 they
will normally create 45 to 55 units. If they come in and work from 7 to 1 with an hour break and then
from 2 to 6, ie. a 10 hour day, you will often
find that they struggle to get above 60 or 65 units.
What happens is that the work expands to fill the day, and
people tend to become quite inefficient for fairly substantial periods of the
day without recognising it. Consequently
they believe from a long history of this sort of operating behaviour that you
need to work inordinately long days to create reasonable amounts of recorded client
hours, let alone recoverable client hours.
However, because they have seldom, if ever, spent time
analysing exactly what they do with the remainder of the time for which
they are being paid, and are away from their family, hobbies etc., they are not
aware that there are major inefficiencies in the way they are operating.
This area of people management is incredibly important to
the bottom line of a legal firm, because once you’ve incurred the salary and
associated overhead costs for a particular individual,
all revenue generated above the break even point is profit.
Improvements in revenue over and above what you are
currently generating go directly to the partners (provided of course that they
are collected) and this can make an enormous difference to the profitability of
a firm.
In a 2 partner firm with 7 people producing $30,000 a head improvement
in revenue each (which, by the way, is incredibly easy to obtain) will
translate into around $100,000 additional profit per partner each year, or $1m
each over 10 years.
If we simply look at average charge rates of $185/hour, or
$185/10 six minute units, 7 additional units recorded and recovered per day per
person will produce $30,000.
In many cases those 7 units can be found simply by better
time recording of tasks rather than a strict concern about time recording, because many tasks take less than 6 minutes
of "real" time.
Simply training busy people to record more accurately what
they are doing can add dollars to the revenue they produce… and dramatically
increased profits onto the bottom line.
One area in which the potential for production gets eroded
is in situations where there is not enough work consistently for a particular
person, and this is either not noticed by the responsible partners, or reacted
to with insufficient decisive action.
The necessary action can be by way of work allocation from
within the firm, or by way of starting up a marketing program, or getting the
foot on the gas peddle on an existing marketing program, holding more
seminars, sending more newsletters, writing more articles, placing more
advertisements, or whatever the marketing mix may be for your particular
practice.
Nothing erodes revenue potential faster than key human
resources unable to produce fees due to a shortage of work…even for as little
as an average of an hour or so per day.
If a solicitor has, for example, an hour a day too little
work for six months at a billing rate of $225, and a realisation rate of 85%,
it will cost the partnership $22,000 in revenue, most of which is profit.
Unfortunately most practices do not get particularly excited
about the absence of 10 six minute units of time, on a daily basis. They simply do not realise how much it is
hurting, or do not make the time to do anything about it in a planned and
concerted manner.
The bottom line is that this inadequate planning and
inadequate workload monitoring is costing partners in legal firms in some cases
many tens of thousands of dollars each, every single year, and is part of the
reason why partners become disappointed with the returns they get for their
level of investment of dollars and time, and the amount of worry which is their
constant companion.
A little more attention to the detail in this area can have
unbelievably pleasant results, and with good planning tools and good
communication it is certainly not necessary to burn out your employees to do
it.
Before you rip into marketing, focus on why you are doing it
and what you are hoping to achieve.
It may be that you have not bothered to work out what you do
that really makes you profits and that you could be doing more of.
If you have team members who are short of work, don't simply
rush into trying to get them more of what they already do… decide first if what
they do is profitable, and whether they could much more profitably be doing
something else.
In some cases the more profitable work may render greater
fees too, so you may need far fewer new files than if you are targeting other
types of work.
Another tip… I
recently came across a situation in which a client legal firm used a simple
check list to analyse the affairs of retirees, and very quickly identified a
situation in which a retiree couple was paying tax( and unhappy about it). It
was easily discovered that the couple’s accountant had not been claiming for
them depreciation on investment properties over the last 12 years where he
could have been.
The last 6 years’ tax returns were reopened, and a cheque
for a tax refund in excess of $50,000 obtained from the tax office!
There must be many opportunities for you to develop simple check
lists that you can spend 15 minutes on with each appropriate client ensuring
that at least all the basic things are being done.
Promoting these check lists through the firm’s general
newsletters to the client base will assist the clients in thinking about the
management of their own affairs and will help to position you as an expert…but
to get the best value from your client base you must have a system for guaranteeing
that the checklist has been used with every suitable client who has an existing
matter… unless a good reason is provided.
Train your people why it's necessary and how to do it.
Back
Issues of KMS ProfitPower Tips™…
If you would like to have copies of back issues please fax
us on…
02 6337 5000…all back issues are free to current
subscribers. In future we will make these all available to you via our WebSite.
Critical
Success Factors…
In each issue we look at an area or two where you can
profitably direct regular attention…leading to solid improvements to the bottom
line… This issue…
Earlier this year I was writing management comments on a KMS
Fee-Earner FeedBack Report™ for a three day a week
The KMS WorkPlan™ for this lady, worked out with her years
earlier, provided for her to do five hours Client Time and two hours Firm Time
per day.
She consistently exceeds the creation of 70 total units per
day, with many of the excess units appearing on the Client side of the ledger,
and creating real collectable Work in Progress…demonstrated by a long term
stability in her Realisation Rate at a high level.
In 91 days worked to the end of April she’d created some
$33,000 more Work in Progress than expected, which would have been in
the region of $40,000 to $45,000 over a full year. The Realisation Rate achieved on average over
the 10 months in the Probate work was 141%, so clearly the good recording is
not being “lost” at billing time.
Debtors are averaging just 0.83 days, and disbursements
sitting at a “massive” $133!
It occurred to me while writing some pretty complimentary
comments on this lady’s FeedBack Report™, that these sorts of results may well
be achieved by somebody who has a decent workload for the limited number of
days available, who comes into the office and focuses well, getting on with the
work in hand and doing it efficiently, with no mucking around.
How much better result overall is being obtained here than
if the lady concerned, or someone else, was coming to the office five
days a week, often with virtually the same workload.
From my consulting experiences in firms throughout Australia
in the last 12 years, and from my own experiences as a partner and an employed
lawyer, I can assure all readers that there are literally thousands of lawyers
in practices throughout Australia today, and clerks and paralegals, who simply
do not have enough of the right things to do all year round.
This puts them in a position where it is simply impossible
for them to create the revenue they should do for their salaries and in some
cases probably demotivates them, ensuring an even worse result is achieved.
Clearly there are three possible answers…
Firms can continue on exactly as they are and wonder where a
substantial part of their profit is going…
They can beef up the marketing to arrange for the correct
number of files to be consistently opened for the resources they have…
They can reduce the working hours of some staff markedly to
ensure that the wages bill is brought back into line with the revenue that is
being created.
Obviously efficiency is important at any time, but if you’re
going to reduce the staffing it will be important to monitor efficiency, and
make sure that the work is going out the door at the velocity it should be.
Unfortunately for those of you who seem psychologically to
dislike time recording… time recording is one of the few ways to be sure
that your resources are being applied to the right things for the right amounts
of time all year round, and thus one of the ways to get profits into the zone
where they should be for your level of investment, effort and worry!
Anyone who would like to see a suitably sanitised version of
this particular lady’s FeedBack™ Report is welcome to a copy by faxing our
office on 02 6337 5000.
( please note new
KMS fax no.).
CSF # Two…In our observation success is more often a case of
doing the basics exceptionally well than it is a case of doing exceptional
things.
KMS Cyclical Billing™ is a case in point. We are still far
too often coming across firms in which billings are poor for a given period but
management has no system to determine whether in fact every possible bill was
done during the period.
This system simply ensures that a reason has to be provided
at least once per month to management on why any given Work in Progress isn't
immediately billable. If no reason is provided the system ensures that a bill
is done forthwith.
Management can relax about billings, knowing that if they
are poor, it is not because of a failure to send bills which could have been
sent. Causes have to be sought elsewhere!
Two Technology
Tips…
TT # One…In
recent months a number of practices have had disastrous computer crashes. The
days of failure to backup have long gone, but crashes are still unbelievably
disruptive, with production affected in document production, email, diaries,
billing, debtor follow up etc.
These crashes have been particularly pernicious, as file
servers have been replaced and crashes have occurred again within days.
It is expensive, but with what is at stake we must be
considering looking again at our methods of providing reliable ongoing
mirroring so that virtually no matter what happens there is a sound system
continuing to operate. Firms should check with their computer advisers what the
very best current methods are in industry generally.
TT # Two…We
have put together some notes on email for lawyers which should be of some
interest. It covers some introductory technical background and some practical
tips on things we've encountered.
For us to email you a copy, just request one via kmsrob@bigpond.com
KMS
Special Report…“Effective Yellow Pages Advertising
for Solicitors”
This area of advertising works particularly well for some
solicitors for some types of work.
There has not until the last few years been a great deal of experience
in Yellow Pages available to solicitors, and thousands of firms throughout the
country advertise every year without a very scientific approach.
We are now also seeing electronic versions of Yellow Pages
appearing…not just the existing Yellow Pages directories available via the Web,
but separate, electronic-only advertising areas, requiring a separate
investment.
KMS has done a tremendous amount of work in the area of
Yellow Pages over the last seven years, and now has a great deal of experience
on what works and the sorts of results that can be expected.
We have written this KMS Special Report for you to give you
a background to the effectiveness of Yellow Pages advertising. It is available from KMS at AUS$95.
Should you wish to obtain a copy please fax us on (02) 6337 5000,
telephone the KMS Management Support Helpline 1800 621 270, or email us at kmsrob@bigpond.com and we will organise a copy for you. A
copy will soon also be available electronically via our WebSite.
Who in
your team will be on "cruise control" …in the office, while others
are on holiday?
December and January can have people recording substantially
less than their WorkPlan™ provides on the days that they "report for
work". December is admittedly usually
less marked in this regard than January.
If people come in for days in early January while many
others are away they often do not get through what they would in the normal
part of the year.
There is a holiday atmosphere, it’s
almost as if they are taking some time to get up to speed…with the first
business day after Australia Day seeming to be the point where most people seem
to "get serious" again.
Many firms which recognise this phenomenon do everything
they can to get most people to take holidays at these times, so that they’re in
the office and working fully effectively for the majority of the rest of the
year.
A similar phenomenon will occur (especially in