8  Guaranteed Profit Drivers for WA Legal firms

8  Guaranteed Profit Drivers for WA Legal firms

Overall, WA legal firms have had a slow and disappointing recovery from our mining boom days.  Legal practices Australia wide have shown signs of industry pressure in areas such as automation, outsourcing and the continual client pressure to adjust billing models, while still maintaining revenues and the pressure to improve profit.

With the average revenue growth spanning anything from 18% in Queensland and 10% in NSW, WA skimmed through, only just missing the not-so- “lucky-last” placing with a 6% revenue growth, just in front of South Australia which maintained revenue averages.

Unfortunately for our legal partners, revenue and revenue growth is not the only component to a successful firm and more importantly, money in the bank.  It’s a balancing act between profit and the ever changing lumpy cashflow commonly experienced by legal firms.  In fact, stats show us that in terms of profit growth, Western Australia came a definitive last in the profit growth race, with profitability actually being slightly worse than the year before.  Performances in profit growth ranged from 9% in ACT to a whopping 25% for NSW legal firms.

So, are we still being haunted by those high boom wages, with the added client pressures to price more competitively?

And what can our WA legal partners do to improve profit and reap short and long-term rewards of a hard-working legal career?

Macquarie Banks Benchmark industry results report indicate 8 Profit drivers to a successful legal firm.  These include the “touchy feely soft skills” as well as 6 other drivers that can be (and should be) regularly practiced and quantified.  The softer skills include;

  • Managing and developing client relationships,
  • And Excellent customer service

The other 6 profit drivers have a financial spin to them, and should be regularly reviewed by the firms finance team and CFO.  They include:

  • Keeping Costs as Low as Possible
  • Highly Structured and Efficient Billing and Debt Collection
  • Marketing and Business Development Activities
  • Strong Cashflow Management
  • Retaining Quality Staff
  • Strong Financial Management

 (You may be thinking how is a marketing function categorised with a financial spin?  And how do we talk numbers when “Retaining quality staff”.  Let’s explore these later….)

Unfortunately for those firms not considered “Top-end” and fit into the less than 50-60 staff, it is totally unpractical to employ a $160-$200k finance person to give support with these remaining 6 drivers!  So, what do these growing firms do?  How can they fulfil these while still supporting staff, handling cases and balancing the bank account?

For consistent support, let’s look at these in bite size chunks and explore what can be done.


  1. Do not leave the “where did our profit go” conversation to year end with your accountant? By that stage the horse has already bolted!  Past and future spending should be reviewed and discussed at least monthly or bi-monthly (depending on your firm).
  2. What is your mix of support staff wage to legal staff wage? How do you compare to legal profession benchmarks?   By reducing your spend in the human element, you may need to increase your spend in technology to improve efficiency.  With that in mind;
  3. How does your IT spend compare to your competitors? What is your sweet spot in the cost of technology and staff.
  4. To help reduce costs: regularly review the options of outsourcing, in the areas of Transcription, IT support, HR, Payroll, Marketing, Admin support and Finance


  1. Highly effective systems are the key to an efficient billing cycle. Whether you are still billing mostly by hourly rate / moving towards fixed fee billing and/or retainers – you are still billing a value in exchange for the time for your staff.  Disciplined billing and debt collection is vital!
  2. A WIP & Debtors meeting should be held at least once a month between the partners / a partner, the CFO and the support staff member/s who play a role in Debtors follow up.
    1. Do you split your billing cut offs? Legal firms are renowned for lumpy inflows – by splitting some depts billing mid-month and others end of month – it should also spread out the inflows of receipts from debtors over the next month/s and relieve some pressure on your bank account.
    2. Are you actively tracking deferred payment cases for family law cases and keeping an eye on how many you are taking on?
    3. What about Personal injury cases? These projections should be updated at least once a month.

(These are important discussion points at your monthly Debtors meeting – as they can severely affect your cashflow projections, which we will cover later)

  1. Do you handle bad payers in house or is this outsourced?
  2. How do your average debtors’ days (time is takes on average to recover fees billed) compare to your competitors? (There is no need celebrating high billing months when your bank account is continuously crying to be topped up!)
  3. Be aware of the traditionally low billings of December / January, and how are you preparing for it now?

Taking steps to action these first two” financial” profit drivers can be “just too hard” or “too time consuming”.  For many these are beyond the capabilities of your bookkeeper, and may not be the area of expertise of your office manager/practice manager.

The best compromise could be a part time CFO, who is in the business of customised financial support based on your budget and needs.  The cost is relative to a junior staff member, and the benefit can span expertise in many areas of business finance, ranging from reporting and profit improvement, planning and systems implementation, maintaining and improving banking relationships and more. You can find out more here: .  If anything, just a small 15-minute phone conversation could lead to driving more profit.

Keep an eye out for next week’s profit driver “bites” as we look into Marketing and Business Development Activities and Strong Cashflow Management.

Hire a superstar part-time CFO

To help you increase cash, profit and valuation and free you up from the burden of day-to-day opperations.