December 28, 2006
Cost-Cutting Tips for the Law Firm
Every law firm should be smart about managing cost and the following tips will help you do so.
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Don’t fall for volume discounts to buy more than what you need. The vendor wants to unload tons of inventory on your back. If you buy more than you need, chances are you’ll waste more, and waste almost always wipes out volume discounts.
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Avoid long-term commitments (leases, etc.) as much as possible, most especially on products and services that are marked by a deflationary trend. The provider will offer you discounts to sign up for two or three years on telecommunications, office equipment, software, etc. The price of these technologies tends to keep falling as a result of Moore’s Law. By “staying short,” you can typically reduce costs.
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Be smart about office space. It’s good to be a little squeezed. So squeeze first before expanding into new space.
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Treat technology expenses as normal ongoing expenses instead of periodic capital purchases. Buy a little bit every month. You’ll smooth out your cash flow, keep your technology more current, and probably lower your costs too.
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Renegotiate your health care insurance as often as you can stand and don’t do it at renewal time. Also, look at co-pays, deductibles and penalties for unhealthy behavior (e.g., smoking) and offer flexible spending plans.
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If you have uneven cash flow, you might be dipping into credit lines often. Credit lines also tend to come with fees attached whether you use them or not. It pays to review your banking agreements to ensure interest rates are competitive and to look carefully at bank fees. You can usually negotiate better rates.
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Always compare unit costs and terms from current vendors to the competition. First, rank your overhead line items from high to low. Start at the top to avoid spending two weeks lowering the cost of pencils to save eleven dollars per partner. Next, look at material costs from non-critical vendor relationships (e.g., office supplies) where there is lots of competition and service really isn’t an issue…just price. Simply call and say, “Give me a better price or I’m outta here.” There are plenty of third-party outfits that will audit bills for accuracy, compliance with terms, and to compare your costs to the competition. As you move into more complex vendor relationships such as a software provider or your health care provider, you must take more account of quality of service and whether the vendor is delivering on their promises. For these relationships, it might save more to simply work together to improve the level of service as opposed to going to the lowest bidder. Service providers want to do more for you…find out how far they will go.
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Make people ask for things, including reports. Lots of supplies and paper get wasted when they are automatically distributed and people don’t actually use them. It’s helpful to periodically check by shutting off supply.
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Budget and compare budget to actual. Compare both aggregate dollars and unit costs.
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Let the finance team have the internal goal to bring down the overhead rate. If you do have profit center reporting, don’t get obsessed about allocating overhead costs. Just use a standard overhead rate for everyone and then task the finance team with the job of beating the rate while maintaining the quality and culture demanded by the firm.
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Don’t ever cut out the coffee.
While managing cost is important, cost-cutting campaigns will not move a law firm into the category of a top performer. If you want to increase profitability, you need to concentrate on increasing revenue rather than becoming obsessed about reducing expenses. You should pursue business development as well as opportunities to increase productivity, increase the firm’s effective rate, and improve realization. Eliminating amenities, degrading facilities, reducing personnel, holding back on salary increases, and reducing administrative staff is likely to cause more harm than gain.
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
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Filed under Expense Control by Tom Collins