April marks the start of a new financial year for many firms and of course the start of the new tax year too. Outside of the office, spring has officially sprung and British Summer Time is eventually here.
A financial year is often a time when businesses take stock and the Directors or Partners take a step back to review how things have been for them over the past year and what lies in the year ahead.
Law is not just a profession, it is also a business. It is vitally important for any successful organisation to review their performance and set clear performance objectives for the coming year. It can be a daunting task to balance the management functions of a law firm with client matters, but is one that any successful business must do.
When looking back, law firms are noticing some interesting changes. For example, the 2016 NatWest financial benchmarking survey indicated that there was an 8% increase in average charge-out rates over that year. That increase brought the UK average to £162 per hour. In 2017, however, the average dropped by £1 per hour, to £161 per hour. Only a small change, but a surprising one given the consistent increases in preceding years.
Charge out rates are not the only thing decreasing either. Taking further figures from the above survey it was found that after 5 years of steady increases, the average fees earned per fee earner dropped from £144,000 last year to £136,000 this year. That’s a drop of £8000 per fee earner, or 5.6%
Firms in general are reporting an increase in fee income, so it is perhaps surprising that the level of fees per fee earlier has dropped. The conclusion of the survey is that perhaps firms are taking on new staff to manage increased workload, as opposed to looking at the efficiencies of existing staff.
It is amazing how many firms focus heavily on fees earned and time recorded, but not so much on profit. Historically this has been because firms have found it easier to measure fees billed and time recorded than to calculate the profit earned for different types of work, for individual matters and for different fee earners. However, using the right practice management and financial systems within your business will help you to see how you and your staff work now, identify inefficiencies and monitor the effect of any changes.
Having worked with so many firms for so many years, it is clear to me that there are two prerequisites that need to be satisfied if a firm is to be profitable over a long period of time. The first is being professional and the second is being commercial.
For a law firm, being commercial starts with having budgets that set targets for the key KPIs, and then having regular, timely and accurate management information which is available to all and which encourages everyone to constantly strive to find a way of working in a more profitable manner.
Improving productivity is undoubtedly the best way of increasing profitability. A few simple, comprehensive management tools can help your business to thrive.
To discuss this topic further or the services we can offer, please give us a call on 01252 518939, email us at firstname.lastname@example.org or take a look further around our website pages.
Deborah Edwards, Director at Insight Legal Software Ltd