Alexander Y. Benikov 2016-05-03 00:47:49
Practice Management The high cost of high overhead. Why do some solos and small firms fail? While many factors can doom a practice, the single largest reason is overhead. All lawyers in private practice worry about overhead, but for solos especially, overhead can be the difference between making it and not. Solos must manage overhead as they often don’t have the large cash flows of medium or large firms. A large firm may be able to get away with wasting money; a solo can’t. A practice can’t control overhead if it doesn’t know what its overhead is. I am always amazed when lawyers don’t know their numbers. A practice serious about managing overhead must know exactly what it is spending. A simple bookkeeping program can easily track where the money is going, including everything from stamps and copies to legal research and assistants. With my bookkeeping software, I can easily see how much money I am spending and compare the spending to past months— and years. If you are still doing your accounting on a piece of paper, it might be time for a change. The second part of having a manageable overhead is learning to spend as little as possible. Every dollar counts. With technology, it is truly possible to run an entire practice with a cellphone and a laptop. One huge place to save money is to consider not having a physical office. There are many alternatives, like virtual offices, office sharing, and office-by-the-hour programs. Think of how much money your practice would be saving if you didn’t have a monthly rent or mortgage payment. I have had a virtual office and have shared an office, and both options saved me tens of thousands of dollars. A great option may be a lawyer performing some legal work for the office owner in exchange for office space. My point is not that you have to give up your office; my point is for you to think of places where you could save money. Be creative and think outside the proverbial box. Another key to managing overhead is to realize that little things add up. Most attorneys I speak to realize what their big expenses are but don’t think about the more trivial ones. My favorite examples are coffees and lunches. Do you know how much you spent on these last year? If an attorney eats out once a week, he or she spends approximately $500 a year on lunch. If that same attorney eats out four times a week, he or she spends $2,000. Over a 10-year period, the difference between eating out once a week and four times a week is $15,000. Little things add up quickly. Another expense that quickly adds up is having an assistant or paralegal. Consider a quality call-answering service or a virtual assistant. The difference between a physical assistant and a virtual one can be thousands of dollars a month. Don’t forget to take advantage of State Bar of Texas offerings such as retirement funds, free legal research via Casemaker and Fastcase, and health insurance through the State Bar of Texas Private Insurance Exchange. Every penny saved on these types of necessities counts. I can’t promise that if you wisely manage your overhead, your practice will succeed. I can promise that if you don’t, your practice will fail. ALEXANDER Y. BENIKOV has owned and run his own practice for the past six years in Phoenix, Arizona. He is also a law professor, lecturer, and author of three books. He can be reached at firstname.lastname@example.org.
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