Update from Ray Anderson

Legal Firms, are your overheads too high? Industry commentators continue to urge law firms to take a critical look at the way their businesses are run. Despite the green shoots of economic recovery beginning to push through in 2013, challenges facing law firms will remain the same; Oversupply of law firms in the marketplace, regulatory changes and pressure to reduce fees. Front Office versus Back Office. Obviously I am in no way qualified to comment on the professional side of your business, the so called Front Office, so I won’t. The Back Office however, is another matter. Also known as Overheads, Discretionary Spending or fixed business running costs to name but a few. I would argue that unless your firm has thought about innovative methods to reduce back office running costs then you are missing out on the potential to significantly increase your profits. Take a look at this simple example; Your firm’s turnover is £125k Deduct from turnover, Front Office costs (Salaries, training, marketing etc) of £50k Deduct from turnover, overhead costs (Rent, rates, energy, telecoms, IT etc) Total deductions= £100k Profit before tax = £25k Now reduce Back Office (overheads) costs by 10% i.e they are now reduced to £45k. Total deductions are now £95k Profit before tax is now £30k Your profits just went up 20%. Or by 2.5% if you’re involved in criminal law…. Do you think your firm could increase its profit 20% by increasing fees from new business….? Innovative thinking from you comes in the form of an acceptance of the above argument together with an acceptance that there are specialists out there who can add real value to your business, and if this can be done with minimum input from existing staff and on a “No Win No Fee” basis. It would be shortsighted not to at least learn more. On a lighter note a comment from a lawyer friend of mine was “innovative thinking from a lawyer will be that we don’t know everything just because We’re Lawyers”. Don’t shoot the messenger. In a highly competitive UK market there will be some clear winners and losers over the next few years as firms seek to take market shares from rivals and maintain profitability. Giving your back room a health check, could provide the edge you need.

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