One of the hardest parts of law firm practice management is the dilemma of escalating costs. No matter the budgetary area within a law firm, on a yearly basis, costs generally creep up.
This annual escalation of increasing costs can be a real problem for most law firms. How can a law firm cover the annual increase in costs? Are there places where costs can be cut? These are questions a law firms has to ask.
There are many areas where costs can continually seem to rise. And while this list is in no way all-inclusive, here are some areas where costs can continually seem to rise: rent; marketing costs; insurance; employee salaries; taxes; office supplies/equipment and utilities.
For any law firm, there are some areas in the law firm where an increase in costs an annual basis is impossible to stop. But there are other areas where the law firm might need to change what they are currently doing to try to slow down the annual creep in costs.
For the long-term, and even short-term success of any law firm, it is critically important that this be considered long and hard. Many law firms can just go with the flow and accept the annual increase in costs. But over time, this can create a budgetary problem. In some law firms, the budgetary problem can negatively impact or even cause the break-up of the firm because the overhead can get too high.
To help alleviate the increase in costs, most law firms are forced to raise their rates. Raising rates can and is an option for many law firms. But there is a point for most law firms where clients will not agree to pay for the services of the law firm. Or, even if they agree to pay the increase in costs, there is a point where many clients will fall behind and the accounts receivable will escalate.
Many law firms may need the professional help of an accountant, or other financial professional, to learn to manage annual increase in costs to make sure they are on a firm financial ground. Either way, be sure to scrutinize increasing costs to make sure your firm is on a firm financial position.
For most law firms, you cannot just go with the flow with every rate increase imposed on your law firm. For some, you will need to simply say “no” more and not be afraid to change those with whom you do business by shopping for a lower rate elsewhere.
If you have any thoughts, feel free to share them below.