December 16, 2005
Best Law Firm Practices for Increasing Leverage
“Leverage or not to Leverage?” seems to be the question now days.
It really is pretty simple. Leverage is good and works when it is “working”. You have to have enough work to keep them “working” and they have to have enough skill to do the “work”. If your leverage isn’t “working” then you either have too much of it or the wrong kind. If you are turning down business or not looking for more business because you are doing work others could do, then you have too little of it - leverage that is.
Bruce MacEwen in his Blog, AdamSmith,Esq.com, does a great job in exploring the relationship between leverage on one hand and utilization on the other as he reports on an article in The Recorder. Leverage and under utilization leads to lower partner income. High utilization together with high leverage results in high partner income. People without work to do are a cost not an income source.
The list below is a reminder of steps that you can take, among others, to increase leverage and improve per-partner income.
Steps for Increasing Leverage
· Reduce the number of partners through retirement and attrition
· Change the firm’s compensation plan to favor supervision over working credit
· Raise partnership criteria
· Consider classes of partners
· Create or expand layers (titles) of permanent leverage— paralegals, staff associate, senior associate, executive associate, senior council, non-equity partners, etc.
· Improve recruiting to hire more associates and paralegals
· Increase lateral hiring to add experienced associates
· Invest in a better business system to provide business intelligence information that facilitates management of associates and paralegals
The approach to raising per-partner income should be done with long-range considerations. First, determine how the firm stacks up against benchmarks such as those available from Altman Weil surveys, http://www.altmanweil.com.
Fix the areas where you fall short.
The first item to consider should always be improved marketing, especially to existing clients. The second item is adjusting leverage to fit the nature of the practice. Third is to engage in structured planning to identify the main things the firm should concentrate on to improve the business over the long term. Fourth is to improve management with focus on the law firm business model - leverage, utilization, rate, realization and margin. Doing so requires a sound business system that provides the business intelligence and tools to keep the firm in line or ahead of its peers at all times.
Related posts
Filed under Law Firm Bus Model, Leverage by Tom Collins