Improving Law Firm Profitability

Question:

I am the sole owner of a three attorney firm in San Francisco. I started the firm seven years ago. We are an estate planning firm. Everyone is working hard and putting in the hours but we are not making any money. I am only making around $110,000 net income/earnings after overhead. Should I take a meat ax to my expenses?

Response:

Surely you should examine your expenses to insure that you are not wasting money and resources. However, I find that in more cases than not the real problem is insufficient gross income and lack of sufficient investment (spending and time) on marketing and initiatives designed to stimulate client and revenue growth. For most firms increasing revenues is the most effective way of impacting the bottom line.

While unnecessary expenses should be reduced – once they are reduced a repeated effort to slash costs proves fruitless as a strategy to increase the firm pie. The vast majority of law firm expenses are fixed or production-related. The percentage of costs that are discretionary is low, typically in the 20-30 percent range, and the number of dollars available for savings is small. The available dollars available for reduction disappear after a year or two of cost-cutting, leaving the firm with dealing with the effects of further cuts on production capacity.

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John W. Olmstead, MBA, Ph.D, CMC

Posted at 09:02 PM in Financial Management
Tags: Firm, Improving, Law, Profitability

Jun 09, 2015

Improving Law Firm Profitability

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