Don’t waste your time trying to control the uncontrollable, or trying to solve the unsolvable, or think about what could have been. Instead, think about what you can control and solve the problem you can solve with the wisdom you have gained from both your victories and your defeats in the past.  – David Mahoney – Author

Now that the mid-term elections are behind us, we can all get refocused on making our law firms stronger. An excellent start is to conduct a quick self-assessment of the state of the firm.. Here are 5 areas that, if carefully examined, combine to provide an accurate preview of what the future has in store for your firm.

1. Turnover – has there been any unexpected turnover? If so, it is a sign of potential trouble. Law firm leaders should regularly (monthly) 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?

2. Dissatisfaction – is there any measurable dissatisfaction within your firm? If so, is it growing? Relative satisfaction 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 tourble. Do you have growing dissatisfaction in your firm?

3. Profitability – have your profits stagnated or worse yet are they falling? Profit pressures 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 numer 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?

4. Debt – has your firm increased its use of debt for operations?If so, it 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 obligation has embarked on a treacherous path.

5. Litigation- is your firm facing new exposure from client or employee claims of any type?  Claims against the firm can be enough to create serious problems 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.

Is your law firm at risk????