Law Firm Financial Management: Cut Fat, Not Bone

In booming economies professional service firms tend to get lax with internal operations. You want to fly first class for the conference in Denver? Sure. A potential client is a huge Miami Heat fan? Take the season tickets and make sure they have a great time. Everyone wants their own copy of the New York Times each morning? Of course! Those were glorious days but in this market forget it.

It’s time to sit down look at historic spending and budget for future expenditures and capital improvements. What are we spending? Which costs are strategic and which ones should we trim? Align your spending with your firm’s short and long-term initiatives and you’ll be surprised at how much more cost efficient you’ll be.   As you go through this process assess the following areas carefully.

Compensation and Benefits
It can be tempting to cut employees make across the board salary reductions or freeze hiring but this can be very damaging in the long term. Offering early retirement or buyouts can be even worse because your most talented people will most likely take your offer – they can find positions elsewhere.   While salaries tend to get the first look in bad economic times it may be wiser to review other options for tightening operations and controlling costs. If you need to make changes in pay structure make sure to communicate well.

Don’t cut back on the small things that show employees you care. Free coffee or snacks may be part of your culture. Don’t sacrifice employee morale for the small savings you’ll find there.

Office leases
Office rent is one of the largest expenses for legal practices. Do you have satellite offices with just one or two employees? Perhaps they can work at home.   If you have leases coming up for renewal consider what class of property you need. Class A is nice but maybe Class B would be fine. Wheel and deal.

Storage costs
Keeping paper files may be comforting but it sure is costly. Consider how much you spend on storage both onsite and offsite. Investing in a paperless platform may appear to be an unnecessary expense but it will pay off quickly and increase efficiency. The space you currently use for file storage could be transformed into efficient uses – a beautiful conference room or several offices.

Vendor contracts
If your firm has several offices chances are each office has their own vendors for equipment office supplies even coffee. Pool these contracts and put them out for bid. Buying in bulk can generate instant savings. Vendors will appreciate your business particularly in this economy.

Library and subscriptions
How many copies of the Wall Street Journal does your firm really need? Do you subscribe to an industry newsletter partners needed for a litigation matter five years ago but never canceled? There’s money to be saved here. Library costs for both space and updates are a substantial expense which should be reviewed. Can some publications be used on-line less expensively?

Business development travel and entertainment
This is an area where costs get out of control egos get into the mix and administrative oversight can breed resentment. But it’s one of the biggest places to find waste.

Many firms have no oversight in this area. Assign someone to review the entire expense line. Is it strategic spending? For example one person may have fifteen memberships but how can they participate in fifteen organizations in a meaningful way?   Do you really want to attend a black tie event every weekend? Contributions to community organizations generate goodwill and  referrals but saying yes to any request without reviewing the benefit to the firm can’t continue.

Create policies for how business development funds should be spent and establish review procedures to make sure the policies are followed.    Similarly establish policies for meals and travel. Consider setting a minimum of miles traveled in order to be eligible for gas reimbursements. Negotiate firm-wide contracts for rental cars hotels and other travel costs.

It is essential to evaluate your current business model break down the costs and keep the things you need while eliminating any excess. Tightening your belt might be uncomfortable but with good communication you can reduce costs retain staff and maintain morale.

Kara Stearns Sharp leads the advisory practice for Kaufman Rossin. one of the top accounting firms in the Southeast. She can be reached at ksharp@kaufmanrossin.com