Ready to Scale Your Law Firm Hard? Tips from a Fractional CFO

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Leaning on her experience with rapidly scaling law firms, Fractional CFO Kimberly DeCarrera shares her top tips for law firm owners ready to start scaling their own law firms.

Remember, growth is risky. Rapid growth is the most likely time that a law firm will fail, usually from burnout or running out of cash. Following these tips will make it more likely that you will not only succeed but even exceed your growth goals for your law firm.

The TL;DR: Here are the top tips Law Firm Fractional CFO Kimberly DeCarrera recommends for scaling your law firm:

Improving your physical and mental health
Setting the growth vision with all key stakeholders
Preparing your law firm’s systems, including marketing
Creating advanced financial models for different growth scenarios
Improving utilization without causing burnout on your team
Aligning incentives for everyone, including partners and team members

Read on for more details for each of the six main points.

Get Your Mind and Body Ready

The first step is not actually about finances. It’s about getting ready for the next stage of growth personally. You will be stepping up your personal game and stepping into a whole new ball game. You need to be ready for that.

The law firm owners that have been able to smoothly make that transition have really invested their time, energy, and even money, in getting ready for it.

Yes, physical health matters — staying healthy will be a big part of successfully growing your practice. That doesn’t necessarily mean 5 am trips to the gym or ice baths. But it does mean improving your immune system, clearing any brain fog, and fueling your body with lots of water and good food. Improving your physical health, whatever that may look like for you, will help improve the likelihood of success for your firm’s growth.

Mental health will matter even more. Have you dealt with unresolved trauma that makes you a bad boss? Because you will find that being a good boss, reducing turnover, and hiring the right team members will make all the difference in successfully growing your team and your firm.

Are you mentally ready to delegate? Kimberly has seen lots of smaller firm owners be unable to delegate even the smallest of tasks. It is near impossible to scale when you have to hold tight to all the pieces of the puzzle. Work on letting go so your firm can fly.

Set The Growth Vision with all Key Stakeholders

Our long-term growth plans are not always about maximizing the profit today, as we reinvest in the growth with new marketing and new team members. Is everyone on board with the growth vision?

Too many firm partnerships have blown up over different visions for the future and how you invest today’s profits for larger profits tomorrow. Every partner needs to be on board with the long-term growth vision.

But it is not just your partners that need to be on board. Do you have other key stakeholders that you should seek input from? Notably, the spouses and families of the partners, because growth can mean lots of intense periods of work away from the family. It doesn’t have to be, but the fastest growing firms almost always have people intensely dedicated to the firm, often at the expense of family. You will often see this conversation from women-owned law firms where their husbands aren’t on board because of the effects on the family. You need buy-in from immediate family so you don’t end up giving business to your friendly divorce attorney or destroying your own firm (or both).

You will also want the input from key employees or vendors. The firm will change during any rapid growth expansion. Do they want to be a part of this change? Are they excited for what may come? Or do they want to opt-out? Are they capable of leading other team members or systems into the next phase of your firm? One thing that many owners will have to come to terms with is that who got you here may not get you there. Some key team members may not be with you throughout this journey.

Buy-in from all key stakeholders up front will help you tremendously. It will help you avoid fights with partners, business or romantic. It will help you plan your staffing moves to create the best team for the growth period. Because turmoil during a growth phase is very risky and may delay, if not derail, all your hopes and dreams.

Prepare Your Firm Systems

The best firms create a high standard of work on a consistent basis. This comes from systems, where you can 1) automate and 2) standardize the work. From case templates to branding, the firms that have scaled successfully have great behind the scene systems.

In the best case scenario, you have standard operating procedures (SOPs) for each aspect of your firm, from intake to onboarding to legal services delivery. But not only do you have them, they are written down and documented so that other people can pick them up and learn how to execute your standard processes.

If you need help creating or improving your firm systems, our Fractional Operations team can help you establish systems that will work for your growth goals. Then they will help train new team members as you onboard them and continue managing them, so you are focusing on marketing and new case acquisition instead of operations.

Reminder: Systems will break during growth

Now is a good time to remind you that your systems will break as you grow your law firm. What has worked to this point will not work at some point in the future. Part of getting your mind and body ready (step 1) is to make sure that you are adaptable, willing to change as circumstances change.

Kimberly estimates that law firm operations will break every approximately 30% of growth. Now, that’s not to say that every system will break at the same time, but they will. If you are rapidly growing your firm, you will constantly be working on your systems.

And no, that does not mean to over-engineer your systems to fit 100 or 1000% of your current size. Because the systems that work at $10 million don’t often work at $1 million revenue. That is especially true for systems made for $100+ million firms vs $1 million firms.

Build Your Client Pipeline

One of the most important systems that you will need to build is your client pipeline or your client acquisition process. 99.99% of law firm rapid growth plans will involve a dramatic increase in new cases or client matters.

Is your marketing able to do this? How can we get better at client or business development? Is it paid ads? In-person seminars? Social media campaigns? Community sponsorships? Billboards?

But it can also be things like CRM, having systems to follow-up with people that previously contacted you. Asking prior clients for reviews and referrals. Developing deeper relationships with referral sources.

For the Big Hairy Audacious Goals, it is going to take all of it. So get to work on getting new leads and turning them into paying clients.

Prepare Advanced Financial Models For Your Target Growth

When Kimberly works with law firms that want to rapidly grow, she will prepare multiple advanced models to show different possible outcomes. Then firm owners can make decisions based on those models to hit their ideal targets.

While we talk about these models as one big monolith, there are actually multiple smaller models – from capacity planning to case acquisition to new office locations and multiple practice areas. We combine them all to create the “advanced financial model” for discussion purposes.

Some of the variables that we want to look at in these models include:

Can we market and advertise to get the new cases that we need to hit targets?
If we get the leads, can our intake systems support the calls to sign the cases?
Do we have the lawyer and support staff to get the work done?
What happens if we don’t hit the projected new cases?
Can we hire fast enough in our market?
Do we need to add new markets? Whats the cost? Ramp up time?
Are there complimentary practice areas that we can add to reach revenue targets?

Another thing that happens outside the financial models that will have definite impacts on our ability to grow is outside sea changes. This would include something like tort reform that makes it hard to increase the average case value for personal injury cases.

Using the Advanced Financial Models to Make Decisions

These models are not made to be put on a shelf. The models are made to guide your decision making process.

The riskiest time for a law firm is during rapid growth. This is when you are most likely to run out of money. The financial models help guide us on decisions such as marketing, hiring, new practice areas or offices, by showing us when revenue and expenses are likely to hit. Depending on the timing of revenue and expenses, we may run into cash flow situations. The earlier we know about potential cash flow issues, the more options we have to fill the gaps – from financing, delaying expenses, accelerating revenue, and more.

And the largest expense for most law firms will be our people. Timing new hires is important, so we can avoid burning out our staff from overwork while also preserving our cash during the growth period.

Another way to use the advanced financial models is to look at various pricing decisions. Do we need to raise rates? Do we need to ditch a particular type of work because it is not profitable? Do we have our flat fee rates dialed in?

The financial models will also help us set both firm wide and individual KPIs. The models work because we have made some assumptions, and we need to know when we are outside the acceptable ranges for those assumptions. That can be something as routine as billable hours for attorneys or new case acquisitions for the firm. It can also be KPIs like average case value, lifetime client value, and days on desk for cases.

Improve Utilization Without Burnout

A big part of the WHY for the systems and KPIs that we build for our firms is so that we can improve utilization without burning out our team. Some of this will happen naturally, as we improve our systems, we can get more work done. Some of it will have to be very intentional, so we don’t assume that our team can take on more and more cases without extra help.

This is often a fine balance between science and art to how we improve utilization. We can start by measuring it to see where we can improve. Things like billable hours are usually where we start for attorney staff. Are we billing enough to reach revenue goals?

Are we exceeding the upper bounds, leading to burnout? Sorry, but I don’t think any attorney should be billing more than 2,500 at the extreme upper end. That’s almost 50 billable hours every week, with no breaks. No time for vacation, being sick, getting their CLE in, or developing personally as a lawyer or leader.

In addition to billable hours though, we should also be looking at non-billable hours. This is something that would be a prime target for delegation, something that someone else can do while the attorney works on their highest and best task for the firm.

But let’s not stop with non-billable hours. Are there lower level billable hours that we can delegate or redistribute? This can mean moving partner level hours to associates and associate work to paralegals. In addition to keeping the other staff billable, this opens up higher level team members for other opportunities – from breaks to prevent burnout to business development to new clients at higher rates.

The art will come in next. We need to discuss the utilization with our team members. Remember, they are not robots and we shouldn’t treat them as such. We can set minimums and even maximums. But we need their feedback on whether it works for them and if they can meet those targets. Our team can even be a valuable source of information on how to delegate or distribute hours or improve our systems.

This is all a feedback loop. As we improve our systems, we can do more. As we improve delegation, we can do more as a team. But we can also create negative feedback loops, as we try to get more and more to game the KPIs, leading to burnout.

Align Incentives for Everyone, Including Partners

One of the fastest ways to burn everyone out AND to run out of money is to mismatch incentives. Instead, we need to align incentives for everyone, including partners.

Partners may be aligned on profit, but is that short-term or long-term? Going back to step #2 of aligning the growth vision with all key stakeholders, we need to make sure that we are aligned with reinvesting for the long-term instead of taking cash out now in the short-term.

An issue that we see a lot of partners get derailed on is with the spread between client acquisition numbers and doing the work. Many firms are setup where one partner is majorly responsible for business development while another partner is responsible for delivering the work. If the incentives are not properly aligned, you may see partners stepping on others toes so everyone is doing client development and “stealing” new clients or no one is paying attention to it at all, in favor of getting the work done. These incentives need to be properly aligned to ensure not only is everything getting done, but that there is no silent resentment building between partners.

We also need to align incentives with the staff. If we have set our KPIs solely on attorney billable hours, they are not incentivized to delegate to junior staff members so that their own KPIs are met and exceeded. A blended scorecard is usually better in this case, so that we meet both individual and team KPIs.

We should also be careful when we look at KPIs, and any associated variable or bonus compensation plans, to make sure that they are moving the needle forward for the firm goals. For example, talk time for the intake team may be seen as a good metric. But are they spending too long on the phone with someone that will never sign? Are we billing hours on a matter that we will never collect on?

What Rapid Scaling Really Looks Like in a Law Firm

In most law firms, rapid scaling looks like a chaotic mess, with lots of missteps, failed marketing campaigns, and high turnover. In a law firm with a strategic growth plan, rapid growth can be controlled, with regular check-ins, adjustments made as necessary, and calm.

With strategic growth plans, your law firm can multiply revenue many times over, improve margins, and grow with happy teams. This will lead to an increased valuation with systems and processes that any buyer would seek.

Ready to build your strategic law firm growth plan? Contact Springboard Legal so our team can work with you to build a plan that fits your vision and exceeds your growth goals.