Law firms everywhere have one thing in common: they are all looking for different ways to make more money.
The apparent path to increase their profits is by taking on more clients.
More clients mean more cases which results in more money.
But what happens when you’re already got too many cases in your hands?
You’ll say that hiring more lawyers is the answer. However, another question remains: where would you put them?
In a bigger office of course! Unfortunately, that means more costs and not more income flow.
If you want to increase your law firm’s profits, it’s best to take a long hard look at the biggest profit-killer in the law firm accounting world, which is soaring overhead costs.
Let’s find out what overhead costs entail and how you can reduce them as much as possible!
1. What Are Overhead Costs and What Increases Them?
Overhead is any cost that is unrelated to a lawyer’s income. It includes office rent and supplies, phone, internet, light bills, heating costs, printer paper, and sometimes new boardroom tables.
Moreover, overhead costs can also include salaries of paralegals, secretaries, bookkeepers, assistants, or IT specialists.
Anything that doesn’t directly generate income is categorized as overhead. And most often, it’s easy to let those costs get out of control.
For example, unlike a corporate office where employees get in touch with the procurement office to buy office supplies, multiple individuals can purchase new office furniture or have meals with clients at law firms.
The absence of centralization is just one factor of law firm overhead costs. There are primary factors that may be increasing your firm’s overhead costs.
Let’s take a look.
2. The Main Factors that Drive Overhead Costs
The majority of law firm overhead costs mainly include office space, turnover costs, and technology.
Firms use different systems to calculate overhead costs. For instance, one firm might consider any expense other than compensation to two partners to be an overhead cost.
Another firm might have five or six partners.
Other factors can impact your overhead rates, including your location, the size of your firm, and the type of law you practice.
3. How to Reduce Your Overhead Costs
Reduce Office Rent Costs
Is it possible to rent out a portion of your office?
Can you move to a smaller space?
Or you can add to your team fresh grad lawyers who are young, energized, and ready to learn. They would enthusiastically work for you allowing your firm to produce more and, as a result, lower the overall ratio of income spent on rent.
Reduce Turnover Rates
- Hire the Right People
Just because someone is from a prestigious university doesn’t mean they are more competent than others. Make a comprehensive list of essential questions to judge your applicants based on their interview answers.
- Offer Competitive Pay
This might not sound like a great tip when you are looking at ways to cut your costs, but it can pay in the long run by reducing your turnover rates.
- Flexible Working Hours
The way people work is changing. Many have other responsibilities at home or want to dedicate their time to leisure. So consider options such as longer four-day workweeks, early or later starting times, and occasional remote work.
Another way to increase your firm’s profits is to allow lawyers to spend less time on tasks that are unrelated to their target work. That means delegating tasks such as writing financial reports, drafting annual budgets, updating cost sheets to bookkeepers or assistants as much as possible.
Law firm bookkeeping can help free up time for lawyers to focus on cases that drive profits rather than concentrate on arduous calculations. This is the offer that none of your lawyers would object to.