Is technology leaving you behind?

The world is changing whether we like it or not. Like anything in life, we have two choices – we can either evolve with it, or stay as we are and risk being left behind.

As business owners, we should not ignore change, but a cautious approach minimising exposure to business risk is advisable. So how can we evaluate new ideas and ensure they will result in increased returns?

One of the key components to maintaining and improving profit margins is investment in technology. But before you rush out and spend a king’s ransom on the latest piece of technology which claims to be the answer to your prayers, take a step back and consider what you are trying to achieve. Here is some practical guidance for firms of all sizes to help you through the decision making process

The forces driving your future profit margins:

1. Recruiting the right people at the right levels
2. Increasing salary costs to maintain and attract talented individuals 3. Pressure to offer agile working
4. Limited office space, restricting growth
5. Fee pressure from clients and/or competition
6. Succession planning

These longstanding challenges to growth are familiar to us all. However, if we are open to change, technological advances can offer alternative solutions to these problems and change the way we work. More opportunities become available to us, generating larger profits for the firm.

A PRACTICAL GUIDE TO EMBRACING TECHNOLOGY APPLICATIONS

STEP 1 – IDENTIFYING WHAT TO CHANGE AND HOW

Do you know your current cost of production? Are you using timesheets to record all work performed? Even fixed fee work requires measurement. Timesheets are not just a method for invoicing clients. They are a management tool to help the firm fully understand how they deliver a service to a client. It is essential to have a timesheet policy in place which enables fee earners to record all of their time even when the value of the fee is exceeded.

Without a clear understanding of the costs incurred in delivering client services, your decision making will be impaired and measuring your return on investment will be impossible.

STEP 2 – IDENTIFY WHAT YOU ACTUALLY DELIVER

Once your data is extracted from your timesheets, you can analyse how the time is spent between following a predetermined process or truly adding value. It is the value added work that you want to preserve and ideally grow in terms of quantity and impact for the client, which is a whole topic by itself.

The key is to identify the processes. There will be elements that can be done more cost effectively with no impact on service levels, either by using more junior staff, or by using technology. Many firms already save time using template letters, but is it possible to take this further by adopting artificial intelligence?

What impact would technology have in your law firm – improved efficiency, fewer lawyers, or less reliance on support staff, perhaps?

The aim is to reduce the cost of production without compromising on service, allowing you to do more in less time.

STEP 3 – IDENTIFY THE INTERNAL ISSUES

Administrative tasks necessary for the completion of a matter but of no direct benefit to the client, can swallow up time. When this ‘internal’ time is not recorded on the matter the true cost of file opening and closing, or money laundering will never be known. If you can identify certain tasks performed several times a day, then why not try to automate them?

People do not enjoy repetitive work, so here is an opportunity to get creative by mapping ideal processes for each administration task.

STEP 4 – CALCULATE THE TRUE RETURN ON INVESTMENT (ROI)

Having streamlined your processes by adopting smart processes and technology, you can then calculate the potential cost saving. However, ROI is more than just saving costs. The time saved by introducing efficient processes and technology can now be used to add value (and fees) elsewhere. It is this return that determines the true benefit derived from the investment.

Obviously, when a fee earner spends less time on a fixed fee matter the profit margin will improve. But beware! If the fee is based upon time spent, the technology investment will not directly lead to improved margins for the firm as the efficiency is being passed on to the client. You may not be ready to pass this on to a client just yet, so pricing needs to be considered too.

STEP 5 – LOOK BEYOND CLIENT FACING WORK

The same review of processes will be appropriate across the whole administration function of the organisation. Indeed, larger firms are already creating headlines as their need for support staff changes and reorganisations follow.

The cashier office is a good place to begin. With process changes, often roles can be combined and there is less need to replace employees when they leave. Visit each administration process in turn, be it secretarial support/reception/IT support, to see what actually happens and how smart processes and technology may create savings.

HR departments already use artificial intelligence (AI) to make decisions on recruitment based upon patterns of history, and can identify individuals likely to become successful practice owners into the next decade.

STEP 6 – SEEK HELP

You have done your research, identified areas to improve, and planned what to do with the savings. Now you need to find the tech tools to make your plan work. At this point, get some informed advice from an expert in this field, to guide you through the options. It is time to commit to spending some money. A good decision will reduce costs in the long term and will quickly enable you to get on with the day job without getting distracted by the project.

CONCLUSION

These steps will help you focus on what you really need and save you from buying a piece of software based purely on what the sales team tell you. Remember, technology will not fix anything; it is just a tool and comes with its own challenges.

With rapid technology development, the upside is that the cost of buying software is contracting, and now sophisticated applications are affordable for even the most modest size firms. It is worth taking the time to review your business thoroughly and understand how the service you provide can improve by embracing all the tools available.

Do contact us if you would like more information on this subject, or to talk about any aspect of law firm finance or strategic planning.

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Hazlewoods team of 27 specialises in strategic, financial and taxation matters across the legal sector. Collectively we have amassed over 185 years’ service in advising law firms of all shapes and sizes. Hazlewoods is well known for its compliance services but also advising on many strategic matters such as mergers and acquisitions, valuations of practices and improving performance (both profitability and cash flow) for practice.  With over 185 years of experience in the team, we have seen everything!

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