Well, the end of the year may be several months away, but NOW is the time to start thinking and planning so that your firm can finish 2019 strong and be postured to make 2020 even more successful. Taking time now to set end-of-the-year plans in motion will allow you to take full advantage of potential tax breaks, and to adjust and readjust your allocation of advertising costs and overhead expenses for maximum results. Now is the time to think strategically, thoughtfully, honestly, and critically at what you have and haven’t accomplished thus far in 2019. It’s also the time to begin thinking of the direction you want to take your firm in 2020 and what specific actions will be needed to get you there. With that in mind, I’d like to touch on 4 essential components to successful law firm year-end planning.
1) Know Your Numbers: Look Back at the Last 9 Months:
Successful Law Firm management requires you to know your numbers. If you don’t know what’s working, you can’t replicate it. If you don’t’ realize what’s not working, you will keep throwing good money down the drain and fail to take your firm in the direction you desire. You should begin by looking at the top 20% of legal fees your firm has generated thus far in 2019. What type of cases were they? How did your firm obtain these cases? Did they come from referrals? TV Advertising? T e Internet? Social Media? If you don’t know the source of this top 20%, then you should make setting up a tracking system for all sign-ups a part of your identified goals for 2020. Figuring out exactly what constitutes your top cases and where they are coming from will help you identify who your ideal client is or should be, as well as where to focus future advertising dollars to ensure your firm has the greatest likelihood of continued financial success.
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Identify Your Cost Per Case (CPC). It is important that you know both your average fees, as well as the Cost you are Paying per Case. To determine your average cost per case, look at the average fee your firm generates in most cases compared to your marketing expenditures. Always take out the cases that are very high or very low, as they will skew your numbers. The general rule of thumb is that you want to see a 6:1 return on investment (ROI). This 6:1 ratio is the sweet spot. Thus, if your average PI fee is 30K, then you should be spending no more than 5K on marketing to get that case in the door. CPCs higher than 6:1 need to be evaluated critically.
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There is simply no substitute for knowing your numbers. You should be able to run reports at any time of the year to ensure that your firm is staying on track and hitting the internal benchmarks you have set. You need to know if your advertising measures are working, and at what costs. Otherwise, you are shooting blindly in the dark, and operating on a wing and a prayer rather than sound business principles. As we enter the last quarter of 2019, if you do not have the necessary procedures, systems, and tracking software in place to give you the data you need, take action to rectify the situation so that you will not find yourself in the same position next year.
2) Tax Planning
Now is the time to take a look at the 2019 end-of-the-year federal tax deductions that may be available to you. In order to take full advantage of the new tax codes at years end, you need to take time now to understand your options. I suggest you make time to speak with a reputable CPA or tax planner. While I’m the first to admit I am neither, there are some new rules for this year that appear to be very amenable to cutting your taxes if you have had a great year.
IRS Ruling 179 affords you $1,000,000.00 in accelerated depreciation. Under this Rule you can buy either used or new equipment (and not even pay for it in 2019) and still get the right to claim it as a complete expense for 2019, assuming you are using the new purchase in 2019. For example, now is the time to consider purchasing phone systems, copiers, computers, desks, chairs, cubicles, etc. Vehicles also qualify for this accelerated depreciation, and you can claim up to $25,000 if the vehicle weighs over 6,000 pounds. To take advantage of this ruling, you will want to make sure you buy the new or used equipment and have it in service by December 31, 2019, even if you don’t actually start making financing payments until after the first of the year.
3) Budgeting and Expenses
While I’m not advocating that you be a “Scrooge” when it comes to your firm’s expenses, you must take the time now to critically examine where your firm’s dollars are going. Look back over the expenses for the past 9 months of 2019. What expenses were really needed? What could be eliminated? Tightening your belt, without compromising the quality of legal services you provide to your clients, is typically quite doable for most firms, once they take the time and effort to give the matter a closer evaluation. Likewise, as you prepare to start setting your 2020 budget, it is important to know exactly what your operating costs are or should be for the coming year so you can plan accordingly.
The prudent lawyer takes the time now to look back and identify this year’s most successful advertising campaigns so that they can be continued or even vamped up in 2020. Similarly, the campaigns that were too costly should be scaled back or nixed altogether when setting the 2020 Firm Budget. There’s no substitute for crunching these important numbers as you close out 2019 and prepare to launch your firm into 2020.
4) Identify Weak Link Employees
While few of us relish letting employees go, as you prepare to wind down the year, it is important to take stock of the status of your team. If you have employees that are not carrying their weight, or who are toxic influences on the rest of the team, these employees should be identified, and attempts made to rehabilitate them or let them go as you move forward into 2020. At this time of the year, I ask my key management personnel, including my COO and team leaders to carefully and individually go through a list of all our current employees and rate them as an A, B or C employee. Then, we hold an important management meeting and compare all our ratings. Anyone that has received a C rating is brought into the office and given a guideline for how to improve performance to an A or B level. These employees are given 90 days to up their game. If they are not successful in doing so, then I usu-ally fire them in the first quarter of 2020.
Through the years, I have seen firsthand so many firms struggling with this kind of analysis. While no one enjoys firing employees, you simply must think of the good of the team. If after giving someone an opportunity to rectify their issues, the problems remain, you do no one any favors by allowing these problems to fester into the next year. The A–C employee evaluation process allows dedicated employees the opportunity to advance while also identifying those who are unable or unwilling to improve. Remember this: Your firm is no stronger than its weakest link. You do not want merely average employees. To have a successful law firm that delivers exceptional client service, you need exceptional employees. You need superstar A team players and B players who are solid employees with the potential to become superstars too; there should be no room for mediocrity.
Year-end planning is essential to your firm’s continued growth and the health of both your firm and your pocketbook. While you might not be ready to start looking at these issues, with several months of 2019 still ahead of us, taking the time now to start your firm’s year-end planning will ensure a more thoughtful, thorough and effective process that is more likely to set you and your firm up for greater success as you head into 2020.
