By James D. Crosby
We lawyers are privileged to do meaningful, interesting work for the benefit of others. But the practice of law is substantially different from, and often at odds with, the business of law. Legal work is interesting, challenging and engaging. But we also need to make money to pay our bills,
support our families, sustain our personal lives, and build financial futures for ourselves and our families. To sustain any degree of long-term financial stability in this business, lawyers must run, or service, their law practices like businesses. The business of law requires lawyers to learn and exercise, with sustained discipline, a wholly different set of skills than does the practice of law. Whether you’re a solo or with a large firm, running your law practice like a business based on thoughtful, deliberate decision-making is not always easy, but it is the key to long-term success.
This column, and future editions of San Diego Lawyer, will address the business of law. For today, here are two tips for running your practice like a business.
Business Plans
To successfully run your practice like a business, whether you’re a solo, an associate in a mid-sized firm or a managing partner of a huge one, you must have a plan. Create a detailed business plan for your practice at the end of every year for the coming year.
You will find the exercise of creating that plan is almost always more important than that actual finished product. The exercise of creating the plan forces one to judge business performance over the past year against the prior year’s plan and to adjust, as well as to focus on long-term trends, both good and bad, in one’s practice.
For me, this exercise takes place over the course of December each year. I start with a general statement of my business goals for the coming year and then break that down into more specific monetary, practice performance and practice development goals. I then develop a business plan (or modify last year’s plan) with different components and my goals for those components for the coming year. For example, you may use “Personal Activities and Engagement” as a component and set forth goals for personal engagement with referral sources, participation in professional organizations and boards, and other professional activities, etc., or “Digital Activities and Engagement” as a component to set goals for your professional online life. Just the organization of your business plan will, in and of itself, force you to look at your practice as a business, to assess what is working and what isn’t, and to make modifications. For me, it is a great year-end exercise — to look back at the year and gauge my performance against the year’s plan in order to look forward and make thoughtful and reasonable changes in a new plan for the coming year. It forces me to take a good hard look at my practice on at least an annual basis to see what is working or, perhaps more importantly, what isn’t and to make course corrections.
Budgets
To successfully run your practice like a business, you must develop, and continually gauge your performance against, a well-considered yearly budget incorporating expected collections and expenses. As part of my year-end business planning, I create a detailed budget for the coming year incorporating my planned monthly and yearly collections based on the monetary components of my business plan and my anticipated monthly and yearly expenses. This exercise, again, forces me to look realistically at expected money in and money out over the coming year, and to vet my expenses accordingly in order to meet the yearly profit goals. This yearly exercise requires me to evaluate where the money goes to run my practice, and the necessity and/or efficacy of my expenditures going forward. Expense creep through inertia and lack of planning simply sucks money from your practice and your wallet.
Even for associates in firms with little control of firm expenditures, budgets make sense, especially on the collection side. Set a monthly/yearly budget for yourself based on the firm’s expectations for your performance and your expected or allowed business development budget. Then, regularly gauge your performance over the year against that budget. Stay on that budget, discuss it in your performance review and get that big bonus, nice raise or new partnership at year’s end. Financial performance is a principal component to advancement and greater compensation in any firm. Developing a budget to gauge such performance is essential.
Business plans and budgets are important to any successful law practice because they set business goals and metrics against which ongoing performance can be judged. But, perhaps, the significance of business plans and budgets is not in the finished products themselves, but rather in the thought process that goes into producing them. Thinking about how and from where new work is generated, how much money that work will generate, and where that money goes once it comes in the door is the essence of business planning and a critical component to the business of law.
James D. Crosby is a solo business litigation and trial attorney.