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Red Cave Consulting Law Practice Management Tip

‘Profit Center: How to Feel More Confident About New Hires’

Especially in the current job market, it’s important not to overextend yourself in hiring for new attorneys or staffpersons.  But, since lawyers aren’t very good with math or data, hiring often becomes a real ad hoc adventure.  Most attorneys hire like they do everything else = they guess about what they can afford, and what they can take on.  That, however, can be dangerous, when it comes to hiring, because law firms can overpay (and waste money) or underpay (and risk losing a candidate, or good employee); and, if you spend beyond your means, it may mean that you need to move on from an employee you don’t want to move on from, because you’ve gotten way out over your skis.

So, it makes sense to perform, at least, a basic financial analysis – before making a new hire.  And, for attorney hires, this can be simpler than for staff hires, since staffpersons may not bill directly.  For those staffpersons, this is a bit more of an art than a science, in determining revenue impact on the firm, from, say, more client engagement; but, for new lawyer hires, the calculus is a little more straightforward.  First, you need to determine how many available billable hours (or, work hours) you have for the new hire, within the practice area to which they’ll be affiliated.  Then, calculate the value of that work.  On the expense side, apply a salary figure.  Then, add employment costs, and benefits, if applicable.  Next, add administrative costs for the role.  Tally up the numbers, and see where you stand.  Can you generate a profit?  How much?  The idea is that each employee of your law firm (administrator or attorney) will be a ‘profit center’ for you – if that can’t happen, then you shouldn’t hire.  This analysis may seem obvious; but, busy attorneys usually don’t engage it.

If you are hiring an attorney who is bringing over a book of business, and/or to whom you’re offering a bonus structure, you’ll need to build that into your financial calculations, as well.


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The Rhode Island Bar Association offers free law practice management consulting services through Red Cave Law Firm Consulting.                     

To request a consult, visit the Rhode Island Bar’s law practice management page, and start running your law firm like a business.