7 Common Reasons Why Law Firms Fail

The legal field is incredibly competitive. For small- to mid-size law firms, building a sustainable practice is no easy feat.

However, it’s completely doable if you do good work for your clients, build a solid reputation in your community, and avoid a few common pitfalls.

But how do you identify the potential mistakes that often lead to the collapse of law firms?

At backdocket, we’ve worked with many firms who have overcome common obstacles to thrive in their markets.

To help you in your journey to becoming a thriving legal practice, here are some of the common reasons why law firms fail—so you’ll know what to avoid.

  • Disorganization
  • A lack of direction
  • Inflexibility to the demands of a market
  • Choosing the wrong location
  • Branding failures
  • Striking a balance on billable rates
  • Failing to accommodate growth

Disorganization

Talent and hard work matter in the legal field, but they aren’t enough to make a practice thrive. If no one within a firm is in charge of invoicing, collecting payments, or identifying and eliminating unnecessary overhead, a practice can easily find itself in the red.

Organization also matters when cultivating prospects and bringing in new clients. If you don’t have a system to grow your clientele through consistent outreach, you could be missing out on valuable opportunities for your practice.

A Lack of Focus or Direction

For some attorneys, especially new ones or those branching out to start their own practice, taking any case that comes along can seem like their only option. However, once you notice a pattern of case types that consistently bring in revenue, narrow your focus to capitalize on the momentum.

A lack of focus can also cause you to stray from your firm’s bottom line. Without direction, you could spend too much time and energy on projects that yield no profit and serve only to eat up your firm’s resources.

A legal practice doesn’t need to focus solely on profits, but firms who don’t prioritize generating enough revenue to meet their overhead are putting themselves at risk of collapsing.

Inflexibility to the Demands of a Market

When an attorney starts a new practice, they need to be mindful of opportunities presented by their market. For newer law firms, flexibility is essential. If you’ve noticed several inquiries from people in your region about case types you don’t currently handle, it’s worth asking yourself if you can accommodate the demand from your market.

Don’t paint yourself into a corner by refusing to consider cases outside your comfort zone. Keep an open mind and be sensitive to the needs of the people who reach out to you for help, even if those inquiries weren’t what you’d expected or hoped for.

Choosing the Wrong Location

Speaking of markets, it’s important for law firms to choose theirs wisely. If you’re in a position where you can be selective, take time to see how competitive a market is before you focus your efforts there.

Of course, your location within a market matters, too. A central, easily seen location can give a law firm a distinct advantage. Think of your office’s business sign as an advertisement. How many people will naturally see your office every day? How visible are you to the people in your market?

If your office is conveniently and centrally located, you’ll stand a much better chance of growing your firm than you would otherwise.

Branding Failures

Firms without an identity struggle to consistently bring in new cases. Regardless of the case types you handle, firms should still consider who they are and what their mission is so they can articulate that to potential clients.

Taking the time to focus on building a distinct brand helps solve some of the problems listed above. It can provide a firm direction and help it carve out a place in its market. If a law firm has a marketing budget, it can help spread the message and build awareness of the firm’s brand.

Striking a Balance on Billable Rates

It’s important for firms to understand the value of its services. Billing clients too much can price a firm out of its market, while billing too low can lead to a lack of adequate revenue.

Firms can rely on internal and external research to determine how much to bill for their services. You can evaluate what other firms are charging for comparable services. You should also evaluate your own team’s time spent on a case and compare it against the amount of money earned from the case to determine if it’s time to raise your rates.

Failing to Accommodate Growth

In some instances, a firm’s growth can be its own obstacle—if it’s not managed properly. If handling more cases leads to an overburdened staff, the quality of a firm’s services can decline and eventually sink it.

We’ve talked about managing growth in law firms before, and it often includes bringing on new team members. In some cases, firms can create new positions for team members with skill sets that help manage their processes.

Let backdocket Help Grow Your Firm

We know the challenges facing small- to mid-size law firms. We created backdocket to help them meet these challenges and grow their businesses.

Our practice management software helps firms with intake, communication, automated tasks, and organization.

Let us give you a free demonstration of how backdocket can grow your firm today.

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