Running a Small Legal Practice Has Its Challenges
/about/mistakes-that-small-law-firms-make-2-56a593853df78cf77288e0a1.jpg)
Stuart McCall/Getty Images.
First in a series on How Small Law Firms Can Perform Better
How many of us have walked into a small law firm (fewer than 20 lawyers) and sensed just a bit of disarray? Dusty baseboards, dented furniture, misaligned window blinds, and files in cardboard boxes on the floor can give out something of a less-than-successful aroma. Even as the vastly different business model of BigLaw edges ever so slightly closer to the world of small law (what with the announcement that one major firm is going to start corralling its associates in cubicles) and even though BigLaw is facing its own quite serious challenges, small firms also must contend with a changing legal market, downward pressure on fees, and the tension between practicing law and running a small business smoothly.
Can a client walk into a small law firm office and sense that the business could be run just a little bit better?
The challenges experienced by smaller firms are not merely cosmetic. Small firms by their definition operate with a limited amount of resources. That can translate into limited access to legal databases, limited time for lawyers to dedicate to continuing legal education, and a restricted ability to take other measures to develop practitioners into cutting-edge leaders in their specialties.
As with any small business, when work is flowing in, long-range planning tends to takes a back seat to the more immediate challenge: doing the work well. One common mistake that law firms make “is not having a written plan in place for management of the firm, admission of new partners, handling the departure of lawyers, etc.,” observes Larry Ploucha, a shareholder at Buchanan Ingersoll & Rooney in Fort Lauderdale, Fla.
“There are plenty of revenue-producing things to do in a busy law firm, and this fact often leads to postponing or failing to adequately address this important step. It is akin to the shoemaker whose children are barefoot. The firm’s matters can take a back seat to paying-client matters and never get done,” Ploucha says.
Indeed, the very formation of a small firm is a task that may best be handled by someone other than the organizing partners. “Some lawyers think, ‘I’m an attorney. I can do this myself.’ If, however, the lawyer is not skilled in the areas necessary to organize and document the firm’s structure, it is better to hire someone with that experience,” Ploucha says.
The management v. practice tussle can be exacerbated, of course, where interests among lawyers at a small firm do not align. “Some lawyers want to manage and others want to direct their attention to their legal practices,” Ploucha says. “Some lawyers who want to manage do not have the necessary talent and temperament to do so. The problems arise when there are disputes over who will manage or the vision for the firm and, occasionally, when no one wants to manage,” he continues.
Day-to-day operations of a legal practice need attention that J.D.s are not necessarily trained to give. Lawyers can be challenged by such very basic businessfunctions as payroll and bookkeeping.
“Lawyers go to school to learn the law, not how to be bookkeepers, office and human resources administrators, or accountants,” says Dawn Reshen-Doty, president of Benay Enterprises, Inc., which has offices in Danbury, Conn. and Portland, Maine. Benay Enterprises provides payroll, bookkeeping, and other back-office services to clients.
“They are often unaware of how to effectively and efficiently handle these functions, or how to even evaluate if they are being done properly. Just being compliant for payroll and HR, keeping and updating required Internal Revenue Service forms such as W-2, W-4, I-9, and others drain the hours from the days in a business where truly time is money,” Reshen-Doty continues. “The focus, as it should be, is often on hiring attorneys and paralegals who bring in money, but properly recording income and expenses is the basis for understanding the financial trajectory of a firm’s success or failure,” she explains.
It’s all too easy to make back-office mistakes. “Hopefully, all lawyers now know not to co-mingle client funds with their own, but you still hear of cases where mistakes are made,” Reshen-Doty says. Mistakes she often sees include improperly recording draw versus payroll, not reconciling Interest on Lawyer Trust Accounts (IOLTA) regularly, not recording filing fees paid on behalf of clients, and miscalculating certain fees.
This post is the first in a series on How Small Law Firms Can Perform Better. The other posts in the series are:
- Why Choose a Small Law Firm
- Compensate and Incentivize Lawyers and Staff
- How Small Law Firms Can Cut Costs
- Develop Long-Range Plans that Include Talent
