United States: Tips To Keep A Lid On Overhead Expenses

Lower overhead usually means higher profit margins, but many law firms struggle to contain their overhead costs, from rent and administrative expenses to supplies and services. The good news is that you have many avenues to curb overhead from eating into your profits. Your property leasing and staffing costs are two cost areas ripest for reduction.

What are you paying for rent?

Just about every successful private law firm you see depicted on TV is spread out over what seems like acres of square footage. Thanks to Hollywood, many lawyers and clients have come to see spacious office suites as signs of success.

However, every dollar a firm spends on rent means a dollar less of profit. Moreover, technological advances and changing priorities among younger attorneys—who generally appreciate the opportunity to work remotely—make it unnecessary for many firms to occupy as much space as they have in the past. These days, firm members can easily keep in contact using video conferencing, chat apps like Slack and other cost-effective tools.

Also, smaller space is not just for attorneys. The days of large document storage areas are dwindling. Cloud computing slashes the need for storage space.

If a smaller space is impractical for some reason, you may still be able to reduce your rent costs. Review your lease invoices, checking any increases and escalators against the terms of your lease, and do not be afraid to talk to your landlord about renegotiating it.

Are you overstaffed?

Staffing is another area where law firms frequently can reduce costs and not just in support staff. Attorney headcount may also merit some re-evaluation.

Let's start with administrative and clerical staff. It is easy to fall into a pattern of automatically replacing every administrative employee who leaves the firm. This results in a support staff that never gets smaller (though it may well grow). But given that more and more software solutions are being designed with law firms in mind, you may be able to reduce positions.

Instead of immediately posting a job ad when a staff member leaves, take the time to determine whether you really need a full-time employee to perform that function. Could those duties be split up among other employees or handled with technology? Could they be outsourced at a lower cost? By lowering staff expenses this way, you also may avoid the potential unpleasantness of layoffs down the road.

Attorney and paralegal staffing also is susceptible to excess. You may find yourself with nonproductive partners or more associates and paralegals than client demand requires. Does your headcount match the workload you have now, or the workload you hope to have in the future? It should be the former.

What about compensation and benefits?

Take a hard look at compensation, including benefits, for both attorneys and support employees. For example, you might think about shifting from 100% fixed salaries to a hybrid approach with a variable component based on performance.

As far as benefits, conduct a survey of current employees and review outside research to determine the perks that your attorneys and staff truly value. Do not simply stay with the same package that you have traditionally offered. You might discover that some of your costliest offerings are rated the lowest by the employees that you hope to recruit and retain.

Bottom line

If your firm seems to bill and collect a good amount, yet struggles to grow its profit margins, one of the culprits could be overhead. Reducing overhead and implementing other lean practices can help you contain those costs and boost profits.

Law Firm Group Newsletter – Winter 2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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