You spent years learning how to practice law. Nobody spent a single semester teaching you how to run a law firm.
My favorite movie has a scene where one character says four words to another, over and over, until they finally sink in: it’s not your fault. I think about that scene on consult calls more than you would expect.
A managing partner will walk me through the firm’s numbers and apologize the whole way. “I know I should understand this.” “We should have fixed this years ago.” “I’m embarrassed to show you our reports.” These are some of the best attorneys I have ever met. They are not bad at business. They were just never trained for it.
Why do great attorneys struggle to run their firms?
Because practicing law and running a law firm are two different jobs, and only one of them was ever taught.
Law school covers case law, legal writing, procedure, ethics, and advocacy. It does not cover how to read a profit and loss statement, forecast cash, design a compensation plan, price your services, or decide when you can afford the next hire. Most attorneys pick those skills up on the job, one expensive lesson at a time.
That works for a while. When the firm is three attorneys, the partners can keep most of it in their heads. Then the firm grows to eight, then twelve, and the business side quietly becomes a full-time job that nobody was hired to do.
What does the business side of a law firm actually involve?
More than most partners expect when they hang the shingle:
- Cash flow, including the months between doing the work and getting paid for it
- Billing, collections, and realization: what you bill vs. what you actually collect
- Trust accounting that has to be right every month, not just at audit time
- Budgeting and forecasting that match where the firm is going
- Partner compensation and origination credit
- Pricing, hiring, staffing, and technology decisions
None of these are hard for a smart person to learn. The problem is time. Every hour a partner spends on them is an hour not spent practicing, and the practice pays the bills.
What happens when the business outgrows the partners?
It rarely shows up as a crisis. It shows up as a firm that is busy but not moving:
- Revenue grows, but profit does not grow with it
- Cash is tight even in a record year
- Partners review the books at night and on weekends
- Big decisions get made on gut feel because the reports do not answer the question
- The same argument comes up at every partner meeting and never gets settled
One thing from the finance side: the firms that struggle the most usually do not have bad numbers. They have numbers nobody is reading in a way that is built for a law firm. The information is there. It just is not arriving in a form the partners can use to make a decision.
If it is not your fault, whose job is it?
Here is the other half of the lesson. It is not your fault that you were never trained to run a business. But it is your firm, and what happens next is your call.
The partners do not need to become accountants. They need to decide what stays on their desk and what gets handed to people who do this for a living.
How do managing partners close the gap?
Four shifts, none of which require going back to school.
- Stop apologizing for what you were never taught
Name the gap out loud with your partners. The firms that stay stuck are usually the ones where everyone is quietly embarrassed and nobody wants to be the first to say, “I do not really understand our numbers.” Saying it is where the fix starts.
- Learn the handful of numbers that matter
You do not need to understand every line of the general ledger. You do need to read a monthly report and know what it is telling you:
- Cash on hand, and what the next 60 to 90 days look like
- Realization and collection rates
- Accounts receivable and work in progress, by age
- Profitability by practice area
If your current reports do not show you those numbers clearly, that is not a you problem. It is a reporting problem.
- Decide what stays on your desk
The partners should own direction: where the firm is going, who it serves, what it will not compromise on. Reconciling accounts and chasing invoices should not be on that list. We wrote about this in The Difference Between Managing and Leading Your Law Firm. Your time is the scarcest resource the firm has.
- Get help that is built for law firms
A general bookkeeper or CPA can keep the books. Running them for a law firm takes someone who has seen how a firm’s money actually moves, from the first billable hour to the partner distribution. When you bring in help, ask whether they have done this inside a law firm before, not just for one.
Where 3sixty fits
My training is on the business side. I am a CPA with a Master’s in Law Firm Management, and I have spent twenty years in CFO, COO, and CEO seats. Your training is in the law. Neither of us should have to pretend to be the other. As a fractional CFO, 3sixty takes the financial side of the firm off the partners’ desks, with a dedicated accounting team that works only with law firms, so the partners can get back to practicing and leading. See how a fractional engagement works.
It’s not your fault.
If you have been carrying the business side of the firm on nights and weekends and feeling like you should be better at it, hear it from someone who has spent a career on that side of the table: it’s not your fault. But you do not have to keep doing it alone.
If you are ready to hand it off, let’s talk. A 30-minute conversation about your firm and where you want it to go, with no pitch deck and no pricing until we understand the firm. Book a consult, call (404) 398-3888, or email chris@3sixtyconsultinggroup.com.