As we conclude the first quarter of 2015 it occurs to me that now is a great time for law firms to conduct a quick self-assessment. Here are 5 areas that, if carefully analyzed, provide a preview of what the future may hold for your firm.
- Turnover, any unexpected turnover is a sign of potential trouble. Law firm leaders should regularly monitor turnover levels with a process that quickly identifies any material uptick. Rapid change is destabilizing, even when there is an excellent business explanation. When spotted, decisive action in one form or another is likely in order. What does your turnover pattern look like over the past 36-months?
- Dissatisfaction, this metric is a key indicator of business risk.A growing number of law firms find significant management value in systematically monitoring the satisfaction of their lawyer and non-lawyer employee base. And with good reason, growing dissatisfaction is an indicator of future trouble. Do you have growing dissatisfaction in your firm?
- Falling profitability, can quickly lead to stress for any business. I am not a believer in the Profits Per Partner (PPP) metric as a be-all-end-all; but if your law firm is paying progressively less for the same performance, it is at risk.
There are a number indicators of declining profitability besides the exalted PPP metric. These include:
- Falling productivity
- Loss of a key client(s)
- Increased aging of payables
- Increased aging of receivables
- Falling client billing
How is your firm’s profitability holding up?
- Debt, an increased use for operations is a clear sign of stress. Most law firms use some amount of debt, whether to smooth out collections cycles with a line of credit, or to finance growth and fixed asset purchases. Any firm increasing its use of debt to cover basic operating cost has embarked on a treacherous path.
- Litigation, of any type, against the firm can be enough to create instability for a law firm. Monitoring the frequency and size of claims against the firm is a must. If your firm has seen an uptick in claims activity, careful examination by leadership is essential.
The thing about organizational risk is that the sooner potential trouble is identified the greater the probability that a viable solution can be identified and implemented. The more serious the trouble, the greater the need for outside support, which can bring an unbiased perspective.
Do you know if your law firm is at risk?