Top ten challenges of small and mid-sized law firms

Cosgrove Associates is an Ontario legal management consulting firm whose associates immerse themselves into small and medium-sized law firms to provide specialized financial and administrative management services on a part-time or longer term project basis. 

Our experience shows us that law firms in this size range have to be especially nimble and forward thinking in dealing with the challenges of today’s legal services environment. Little changes can have a bigger impact on smaller firms. Raise your profile to be able to compete with the larger firms for clients. Marketing yourself as being different from those firms is helpful.

Office management generally touches on most of these challenges.

Here are the top 10 challenges faced small and medium-sized law firms in our experience:

  1. Profitability: dealing with rising overhead and stalled billings,
  2. Downward pressure on fees from clients,
  3. Business generation in an increasingly competitive industry,
  4. Finding quality people,
  5. Compliance,
  6. Time management,
  7. Change management — software advances,
  8. Lack of long-term planning,
  9. Security, and
  10. Keeping legal skills current.

1. Overhead costs are rising and client demands evolving, and it’s important to react to those demands.

Law firms not focusing on these economic variances are often happy with billing what they did in previous years, and as a result, they reach a plateau that can be difficult to break through.  As expenses rise and revenues stay flat, law firm profits are squeezed and the partners have to act on that proactively. 

While it’s important to manage expenses, we don’t suggest you target overhead costs as a way to increase profit.  Firms need a good infrastructure — good supplies and people — to run effectively and often it’s best to discover ways to earn more fees without necessarily cutting expenses.

That goes back to the basics of managing your client base: setting goals that are in excess of previous years’ goals, increasing the hourly rates annually to reflect the increase in experience and costs of living and, most importantly, trying to break through a profit plateau to increase income year over year. 

2. Firms also have to deal with the increased demands from clients. 

The economy is changing and we see that people are more conservative in their spending. They want more certainty in terms of the fees they’re being charged by lawyers.  Some clients want to pay fixed fees for the work.  Some are happy to see lawyers delegating less intensive work to clerks who bill at lower rates.

The delivery of legal services is a fast-paced, competitive environment and people expect quick responses from their lawyers and staff. Managing clients is important and lawyers often need to give them an estimate or a range of what a service is going to cost for budget purposes. This helps in avoiding bill shock and ensuring clients have the means to make payment.

Understanding the time it takes to collect and produce standard documents and navigate the legal process to the end of an active file is important. By being aware of the economics of your practice you’re able to give them more of a reasonable fee estimate.  Therefore, it’s wise to apply a budget to the cases that clients bring to you.

3. Bringing in new clients to grow the firm is essential. 

The traditional ways of bringing in new business, by networking and organic growth, are important, but as things move more towards an online presence and on social media, the firm needs to look at new ways to get their name out there and raise their profile.

4. Hiring quality people is essential to any successful firm. 

Make sure your hiring processes are strong. Sometimes you need to adapt to the marketplace to meet the requirements of new people coming in.  For example, many of the younger lawyers want more flexible hours and the ability to work remotely.

Most importantly, once you find someone, you have to make sure they stay for a long period of time. 

5. Compliance with all regulatory requirements is ever changing – from banking, to LSO to governments.

Just managing that can take time away from the practice of law. We suggest hiring consultants such as ourselves to help firms remain compliant.

There are many distractions that can take lawyers away from the practice of law, and it can be difficult to juggle everything and remain focused and efficient when there are so many demands on your time. 

6. Technological advances are happening constantly and lawyers can be slow adapters of this type of change because of their time spent on client service.

7. It can be difficult to take time out to learn new software, but it is important to integrate that into the work process to keep your technology and skills up to date and competitive for your client services.

8. Incorporate long-term planning into your goals. 

If you’re doing a budget, part of that process should include some long-term planning. By setting some goals for lawyers, and the firm as a whole, you’re more likely to meet them. Developing a long-term plan and bringing in some accountability to make sure you move towards those goals is effective and rewarding.

9. Security is another growing concern for law firms and it’s critical that lawyers ensure they are keeping their data safe. 

You must keep your client information secure and follow the rules for the protection of that data. It’s critical that all lawyers and staff in the firm are up to speed on how to compute safety in a world where there are ongoing cyber threats.

10. Keeping legal skills current and meeting all professional development requirements of the law society are essential considerations.

It’s helpful to incorporate those requirements into their daily schedules so lawyers aren’t scrambling to meet them at the end of the year deadline. Best practices would be to attain some of those required credits every month or so.