New Year’s Resolutions
By Tanya Witt
The Witt Law Firm
The beginning of the year is an ideal time to assess your practice and set goals.
A few good goals are: Do what you do well, surround yourself with reliable professionals and gain complete visibility into the financial performance of your practice.
One goal that is universally beneficial is to strive to excel at what you do. With our practices, we should continually renew our commitment to handling all of our legal and business matters properly.
Other new year’s resolutions may involve detaching from any person or mindset that has been holding you back. Another part of the new year assessment may involve financial goals.
Do it well
If you are going to do something, do it right. Some attorneys get into the mindset of “good enough.” Just because sometimes it may be good enough to appear in court or deliver discovery responses late does not mean it is proper or professional.
Have the strength of character to do things properly even if those around you settle for “good enough.”
Be selective at work
Carefully assess the people you work with or frequently interact with because you will become more like them. Harvard physician and sociologist Nicholas Christakis found that lifestyle behaviors such as smoking, drinking or unhealthy eating habits spread within workplaces. The people close to you can influence your work as well.
Be selective about the colleagues who you look to for opinions or advice. Seek out those who are outstanding lawyers and excellent business managers. Just because someone may be entertaining to have a drink with does not mean he is someone you want to do business with or run ideas by. It may take time to determine which colleagues are truly reliable professionals.
The most important test is whether you can trust this person’s word and his or her judgment.
Ask yourself, how does he or she conduct himself? Does he or she use profanity and make inappropriate comments? Is his or her office always a mess with client papers left in plain view?
Project and track financial performance
Gain better visibility into the financial performance of your practice.
First, forecast your expenses, annual revenue and profit margin. Forecasting expenses is relatively straightforward. Be sure to include all expenses such as rent, office supplies, insurance, payroll, employer-paid payroll tax liabilities and so on. You will have fixed expenses that do not increase as your revenue increases and variable expenses that may increase or decrease as revenue or consumption change. If you have variable expenses, be sure to account for their changes as you adjust your revenue forecast.
Use the expense forecast to determine the practice’s break-even point. This means knowing how many hours need to be billed every month, quarter or year to cover the cost of the practice. An attorney can then cast that number as a percentage of her total hours worked. Everything earned after the break-even point is profit.
By way of example, if annual overhead is $200,000 and your bill rate is $325 an hour, you would need to bill about 615 hours to cover your overhead. If you plan to work 1,920 hours this year, you would need to be 32 percent chargeable to break even.
Another useful data point to know is the “fully loaded” cost of employees. The fully loaded cost includes not only employee wages or salaries, but also overhead for each employee such as office rent, technology, workers’ compensation insurance, benefits and employer-paid payroll taxes such as unemployment, Social Security and Medicare.
For example, the true cost of an employee who is paid $40,000 a year may easily be closer to $50,000 if you include the nonpayroll expenses associated with that employee. If the employee performs billable work, then you should know the chargeability required to cover the employee’s true cost.
Forecasting revenue can be more difficult. As a starting point, use last year’s revenue.
If you have reason to believe this year will be better or worse than last year, adjust the forecast. If you plan to take steps such as advertising to increase revenue, be sure to include those costs in your expenses and use a conservative approach when elevating the revenue forecast as a result of increased advertising.
After your plan is completed, establish a process to track your actual results (actuals) throughout the year, for both expenses and revenue.
Review your actuals, as compared to your plan, at least quarterly to determine if you are on track or need to adjust your forecast for future quarters.
Knowing fundamental information about your business, such as your break-even point, and performing basic financial management activities, such as forecasting and comparing actual results to forecasts, will go a long way toward ensuring that you have a profitable and satisfying practice.