DEVELOPING A LAW FIRM BUSINESS PLAN (Part 1)

Category: 
Management

by Greg Williams, Managing Director, One Practice

Have you ever wondered why many business plans prepared by law firms fail? Conversely, why do some law firms succeed? In my experience it all comes down to leadership.

This article is Part 1 of a two part article about business planning for law firms. The second article will set out the structure, methodology and forms you will require to complete your plan.

Some Preliminary Advice

If you are a leader in your law firm, unless you are totally committed to the development of a business plan - don’t do it. The business world is strewn with failed business plans that were started by those lacking leadership qualities. Indeed, many business plans that have been completed fail through a lack of ongoing commitment and tenacity and are “filed” away in bottom draws and it’s “business as usual”.

If you are not totally committed, you may find that putting your firm through an unsuccessful process such as this may miscarry and have a negative impact across the firm. Personnel eager for change will simply grow a healthy scepticism about the firm and seek challenges elsewhere.

On a more optimistic note, a successful business plan can revolutionise how you manage your firm and significantly improve its performance.

Why Develop a Business Plan?

Before you begin, ask yourself why you law firm wants or needs a business plan. Reasons may include one or more of the following:
• greater awareness of the need to provide direction for the firm;
• managing growth;
• diminishing profitability across the firm due to market changes, declining income or poor financial management;
• greater competition in specific sectors driving down hourly rates e.g. insurance and family law;
• aligning practice groups to changing economic conditions e.g. a recession may make government work more attractive;
• succession planning resulting in a lack of fresh blood and energy;
• excessive reliance on too few clients;
• inadequate marketing of the firm; and
• unacceptably high turnover of professional and support staff;

What Are the Potential Benefits?

Benefits are potentially significant.
Some of the reasons for developing a business plan have been alluded to earlier in this article. The process of identifying the main drivers of your firm and exploiting them provides opportunity!
Opportunities may include:
• increased profitability;
• reduced staff turnover
• improved client base;
• rationalisation of practice groups better aligned to the market;
• enhanced career development and succession planning;
• improved morale and firm culture;
• cultivating better quality work; and
• improved management processes and decisions.
But how do you adequately address, improve and continue to manage such a diversity of opportunity?
The opening chapter of Robert Kaplan’s The Balanced Scorecard provides an excellent example of how many organisations measure and manage their operations.

Kaplan invites the reader to imagine entering the cockpit of a modern jet aircraft and seeing the pilot seated in front of an instrument panel that has only one instrument: airspeed. Upon further questioning about the benefits of an altimeter, the pilot responds that he had worked on the altimeter for a few flights and now has to focus on airspeed. Then the questioning turns to the lack of a fuel gauge. The pilot laments that he can’t do too many things at once; and so the story continues. However, the message is clear. Whether we try and fly a plane or run a business, a lack of important and timely information can have fatal consequences. With this analogy in mind, it’s not hard to understand that any business with sophisticated information systems providing management with timely summary information is armed with a powerful management tool.

The pilot of an aircraft has a number of measurement tools that provide all the key information necessary for a successful flight. Collectively the instruments are like the apex of a spider’s web reaching out to all of the crucial components of the aircraft.

There are few law firms that can boast of having a balanced scorecard philosophy. This is particularly the case for non-incorporated law firms that do not have a professional management team with the responsibility and authority to manage the firm and implement change. However, there are number of exceptional partners managing exceptional firms.

Coming back to earth, identifying key opportunities to improve your law firm’s performance can best be achieved through a formal and disciplined process.

Leadership and Commitment

As previously emphasised, the most crucial issue in developing a successful business plan is for the partners and management of a law firm to show leadership. Those whose position it is to manage the firm must commit 100% to the business plan. They need to convey a positive message to all personnel that the business plan will benefit each of them as well as the firm. Everyone must have an opportunity to contribute and own the business plan.

Your Firm’s Performance

Performance is not just about profitability. However, profitability is not only essential; it is also quantitative and therefore measurable. But don’t think profit is “the” only performance measurement otherwise you will be no different to the aircraft pilot. Think: what are the key things you have to achieve to be profitable.

There are other measurables such as staff turnover, achieving budget, comparing this year’s profit with previous years, benchmarking statistics for like firms and wages and salary parity.

Many would argue that performance also embraces qualitative aspects of a firm that are more difficult to measure such as culture, relative ranking with other similar firms, educational programs and quality of its professional services. In this I wholeheartedly agree.

Some firms have seen spectacular improvement in profitability. This may be due to the appointment of new Managing Partner, CEO or General Manager, the economy or improvement in a specific sector such as resources and energy, construction or property. One American firm nearly tripled its fees per partner over a six year period by specialising in mergers and acquisitions.

Performance is a major topic in itself and beyond the scope of this article. However, as you develop your business plan you will see that there are simple ways of identifying and measuring performance.

How is My Firm Going?

I have touched on how to compare or benchmark your firm to others.

Information is easily accessible regarding other firms, the markets in which clients (and you clients clients) conduct their businesses, legislation, economic forecasting, salary surveys, emerging markets or any other information pertinent to developing a business plan.

Sources of information include: Federal and state government agencies, Australian Bureau of Statistics , FMRC , LPMA , law societies, economic forecasts by the Reserve Bank of Australia , Federal Treasury and the Office of Economic and Statistical Research (Queensland).

If you have a government agency with a genuine interest in business development, invite a suitable senior public servants to lunch each quarter to provide your law firm with quarterly economic updates with specific reference to your individual practice groups e.g. property, energy and resources, infrastructure. This is also an excellent way to network at a senior level within the public sector.

The Partnership Versus Incorporated Law Firm Models

In my experience, there are some real potential problems developing a business plan within a partnership. Partners can be a strange bunch to convince about the benefits of a business plan. This runs from enthusiasm to hostility.

Most senior partners probably have prior experience with business plans where much was promised but little delivered. In addition a Partner’s billable hours are affected each time he or she commits to investing time in developing a business plan. This can be a huge disincentive and has to be managed carefully. To maximise the time invested, the firm must be convinced that the structure, process and outcomes are agreed in advance. Good facilitation and feedback to all participants are crucial elements that engender enthusiasm.

Run a Survey to Identify Some of the Key Issues

Prior to the decision to go ahead with a business plan, it is recommended that the firm survey itself, its clients and its suppliers (in that order) through an independent external survey company. To encourage candid responses, respondees should be given a guarantee that individual responses will remain anonymous and destroyed by the survey company when aggregated.

Additionally, you should also inform all personnel that the results will be published: the good, the bad and the ugly. You may achieve this by a PowerPoint presentation that does not release the information in written format or the more bold approach by placing the results on the noticeboard. Not acting on the results will draw well deserved cynicism.

The survey should address many of the main internal and external issues affecting the law firm.

Fee earners, managers and support staff may be asked about their opinions on many issues including decision making and inclusion, morale, salary, continuing education, performance of their partners and likelihood of leaving the firm.

Clients may be asked to comment on the quality of the firms’ work, access to the relevant partner, if the client has business interests other than those being serviced by the firm, value for money and risk sharing.

Suppliers may be queried about their business dealings with the firm, relative ranking of the firm to other firms (suppliers do have favourites), timely payment of accounts and the firms general responsiveness.

The survey is best conducted confidentially via the Internet and all information received is then aggregated by the survey company. Individual responses are then destroyed to maintain the privacy of respondees. The information is then presented to the firm in summary format such as pie and bar charts or other agreed format. This information is invaluable and is like looking into a crystal ball.

Visions, Goals, Strategies and Action Plans

As previously mentioned, the forthcoming article “Developing a Business Plan (Part 2) provides an example of how a business plan may be developed. There are many examples of a business plan but I have found this one to be very useful.

Too many firms get bogged down in academic debates about the definition of a “vision”, “mission”, “goal” or a “strategy”. This is to be avoided by clearly defining each in the preliminary stages of the plan. Then invite comments on these definitions so everyone has a clear understanding of their meaning. Once these are addressed announce that everyone is in agreement. A room full of lawyers debating definitions is to be avoided. A suitable facilitator will have the skills to manage these kinds of issues.

Remember, there is no prescriptive “right way” to develop a business plan for your law firm.

Aligning Decisions to the Business Plan

Let’s assume the plan has been completed. How do you keep it on track?

The final phase of your business plan is to implement your action plans. These set out what has to be done, by whom, when, sponsor, key performance indicators, budget and priority.

Another way to keep your law firm aligned to the business plan is to simply align expenditure with the business plan. When there is a request for expenditure over a predetermined amount, a written proposal should be prepared and submitted to the law firm’s Management Committee with evidence on how it aligns to the business plan. The proposal should have a sponsor who will take responsibility for the expenditure. The proposal should be given serious consideration and reasons conveyed to the proposer whether it is approved or rejected.

Sometimes the decision process is improved if the sponsor makes a presentation to the Management Committee.

Remember that if a proposal does not align with the business plan, it may be an opportunity too good to reject. In these cases don’t make an “exception” to the business plan by giving it a nod and a wink – change the business plan to accommodate the new opportunity.

Try Something Different

During the development of a business plan the rules must include the encouragement of new ideas. It’s too easy for a senior person to talk down to a more junior person who may have a worthy suggestion. Indeed, most of the best suggestions tend to come from those who are new to an organisation or those who have been with the firm for some time but still harbour the seed of a good idea that simply requires fertile ground.

An example of “doing something different” is sales. Yes, sales.
Law firms are no more above selling its expertise than a person selling steak knives. The firm’s approach may be more sophisticated, but it is in the business of selling.

Few firms provide sales training for its fee earners and yet this is a most crucial part to running a successful law firm. Some lawyers are natural salespeople (often called “Rainmakers). However, most are not. All things being equal, it is hard to imagine that a firm without sales training will win more business than those firms who have sales training.

Selling skills may be acquired through formal training and mentoring by a professional sales consultant. In the United States, law firms now employ Sales Directors who are actively and directly involved with the firm’s clients and prospects to “manage” the selling process with the partner. As more and more Australian firms incorporate we may see the appointment of Sales Directors in large firms. At the time of writing this article Minter Ellison had advertised for a National Business Development Director with sales and marketing experience.

In Australia there are sales consultants with the experience and track record to train Partners and other lawyers. Direct advice from a senior in-house sales and marketing Director is by far the best option. However, if you have a limited budget, an alternative is to acquire selling techniques from qualified external consultants. Books and articles written by reputable international consultants such as Mark Maraia are also very useful references. Mark is American and has written a book for lawyers and other professionals. If you don’t have his book in your library, you should.

Less Ambitious?

If you are a partner and your firm is not yet ready for a business plan, you may wish to develop a plan limited to your practice group. In these circumstances see the article “Partner’s: Managing Your Interview” . The article includes a short business plan with examples.