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The Overhead Swamp of Law Firms: Too Much Overhead

LeanLaw Hand sticking out of sand holding dollar bills tightly

Part 1 in a series: How To Reduce Your Law Firm Overhead

Everyone thinks lawyers make a lot of money. Some do. Many lawyers charge a lot of money, but because their businesses are expensive to run, they don’t make a lot of money. For many small law firms that haven’t adopted lean practices, overhead can soar to 50% of revenue or more. Yes, fifty cents of every dollar charged is going into… The Overhead Swamp.

The Overhead Swamp can literally drown your business. Kill it dead.

Law firms with this level of overhead usually have a significant administrative staff, many manual, paper-intensive processes, and redundancy in tasks. I’ve practiced in a (relatively efficient) version of this kind of firm for decades. What I’ve seen is, the higher the overhead is as a percentage of revenue, the less satisfying is the practice. This malaise may manifest in not making enough money, or feeling like you don’t have enough time for yourself, your family or your community.

There Are Two Ways To Escape The Overhead Swamp:

  1. Become uber lean and reduce your overhead or
  2. Increase your production without adding costs.

Our discussions with hundreds of attorneys show that firms that adopt lean practices can operate at overhead levels of 20% of revenue or less. The 20% benchmark is scalable: at $100,000/year of revenue, $20,000/year of overhead is possible. At $1,000,000/year, $200,000/year of overhead should be achievable. I expect most lawyers who are able to build a million dollar practice are already doing so, thus most practitioners should seek to escape the swamp by reducing overhead.

So How Can Lawyers Get Out of the Swamp?

I’ve devised a loop – a seven-step process that improves your productivity while at the same time decreasing your overhead and improving your security and workflows and thus, enabling you to be more responsive to your clients.

Following are the broad strokes:

Accountability: Designate one person in the firm (associate, partner, assistant — doesn’t matter) to understand how the technology is set up, how to troubleshoot and know whom to go to for help when there’s trouble. This person will also find that trusted resource who will advise you on the technology for your law practice management.

Documentation: Create a list of critical information – key vendors, key account info, passwords, where to call for help, and even specific procedures. Think what would you do if a phone was lost, there was a data breach or some other crisis. Use secure online tools like LastPass and Evernote. Keep a hard copy of your most essential information in a fireproof lockbox.

Synchronization: Make sure all of your data is synchronized and backed up. Redundancy is a good thing.

Document Management: Get a secure system like Box.com or Net Documents. Do not store documents on laptops, desktops or devices. Do not buy servers or Network Attached Storage.

Connectivity: Get the fastest internet and mobile service you can afford.

Mobile: Synchronize and secure your mobile devices.

Backup: Enlist a one-day backup solution like Mozy, iCloud or Backupify. Have a plan and test it – just in case.

Remember: You do not have to do all of these law practice management steps at once. That would be overwhelming, stressful and counterproductive. Don’t do it.

I talk in more detail about each of these 7 steps in The Overhead Swap series to help you get your law firm out of the overhead swamp and on the way to becoming LEAN. If you would like more detail and tips on these steps, please visit the follow posts:

Steps 1 and 2: Accountability and Documentation

Steps 3 and 4: Synchronization and Document Management

Steps 5, 6 and 7: Connectivity, Mobile and Backup

Getting Started

If all of this sounds great in theory but you still don’t know where to begin, give me a call or shoot me an email. I started LeanLaw with the mission that every lawyer should have a lean practice.

Join the LeanLaw Movement!

Gary Allen, Founder and Practicing Attorney