Linda Artesani shows law firm leaders how to read their financials and cut costs. Overhead typically eats 45-50% of earnings, with office rent alone taking 9-12%. She walks through concrete fixes: renegotiate your lease, automate billing, improve pay to keep staff, and clean up your bookkeeping so you can actually see where money goes.
Chapters
Hi there, Linda Artesani, Artesani Accounting. This week is all about talking about the financials at a law firm, what we see typically when we work with the clients, and how we make improvements so that the attorneys have the opportunity to really dive in and analyze their records, improve their metrics, and overall just improve their profitability. That's the endgame. So one of the things we do see at law firms is we see messy books. They come to us and the books are a little bit of a mess. Maybe the trust account's messy, but also just the structure, the chart of accounts is not in great order. So that's one of the first places we clean up because we can't figure out where— and make sure it's categorized properly. Because if it's not properly categorized, we— our favorite term in our firm, I always say this to Sarah, garbage in, garbage out. We have to make sure that we're diagnosing and fixing the issues to make sure the records are right. seeing what's killing off the profit. One of the things we look at is overhead. And overhead at a law firm, you know, that's a big piece of the money that goes out the door is really the law firm overhead. And at law firms, overhead generally is any cost that is not related to the attorney's salary, so the partner salary. And so that can be office, the office space, the rent, the phone, internet, legal bills, heating, printer, paper. You can get right down to the nitty-gritty. Even the stuff that goes in the bathroom, right? We can get all the way down into that. There's a lot of pieces of that. All is part of overhead and it has to be factored in. But the overhead can also include non-lawyer salaries. So that's the people who aren't really generating the revenue, but they do— or they're a necessary part of the firm. So you're thinking— I'm thinking like paralegals, receptionists, any researchers, any assistants, security guards. Those are things that we see as part of overhead. It's a necessary expense for the firm in order to be able to calculate what it costs to actually run the law firm. So it's anything that the law firm pays for that directly doesn't generate income is considered overhead. So if you can think of it that way and just kind of look down your chart of accounts to see what that is. So if you're looking at law firms, it can also be even if you had to buy even a desk or furniture, that's an asset, but it would still be an expense of the money out of the firm. The law firms typically spend 45 to 50% of their earnings on overhead costs. 45 to 50%, that's a lot, right? Part of that money is office space. You're looking at 9 to 12% is spent on office space. About 4% is spent on technology. The apps, the software. We do spend a lot. I even looked at my own books this year and I'm like, wow, I spent a lot of money on technology. But it's something you need, right? It's something that helps you do things usually quicker and less expensive. Turnover costs is another one. And we're seeing this a lot with the Great Resignation where people are leaving the firm. If you've got someone that's really good working for you and you don't want them to leave, make sure you give them the benefits, give them the bonuses to help them stay. Get that great work environment. That's probably one of the biggest pieces. If everybody likes to work with one another, they're not going to take off for maybe a couple more dollars an hour or move firms if they're getting the ability to work in a hybrid mode. They're able to work from home and at the office. I think that's important. That's what people are looking for, especially if they have small children at home. They want that flexibility. It's not so rigid. That's what's going to keep those employees working with the firm and not leaving the firm. So ways that you can cut the overhead, and there are ways, there's ways to reduce overhead, which is definitely a place that the profit kind of leaks out. You could get creative with your office rent. So because of the hybrid workspace, now we're seeing that the law firms aren't needing the big office space, but they could sublet out an office spot. You could go back to the landlord, try to renegotiate. That's another option. You could consider moving to another place, better but smaller. That's another— that can tend to be expensive in the beginning, but you might recoup that in the long run if it reduces the rent a lot. There's a lot of ways that you can work through maybe getting to a better space that works better for your firm. Reducing turnover rates, like I just mentioned, you know, offer the competitive pay, try to hire the right people. That's important. Take that time to hire the right people and then offer those flexible hours. And then see if you have— if you're not using online billing software, I want to scream because I talk about this so often. Get the online software. We find this a lot with the solos. They're just using spreadsheets, very time-consuming. Attorneys spend 40% of their time on non-related, non-law tasks. If you're a solo, you're wearing all the hats, so you're spending all this extra time. Maybe you're trying to make a jury-rig system that you can do, maybe using like the— your iPhone to time it. These are the things I see people do to save money because they don't want to spend the money on the software. It's just— you're just leaking money that way. It just doesn't make sense for that. Make sure you have the right law firm meeting tools, the lighting and all of that as well. Those are just some of my ideas that I would like to share with you today as far as working through your financials. When you get good financial statements, you can analyze all this data, make sure it's all in the right space, it's all lined up beautifully, and you'll be so happy. Of course, if you need this kind of help, you need somebody to go through all this and help you clean it up, fix it, and help you analyze it. That's what we do at our firm. So please feel free to reach out to us and keep following us. Click the like button, click the subscribe button, and you'll see more videos And thank you so much for watching. Bye now.
