Identifying the Top Challenges to Law Firm Profitability

The last couple of years have presented serious challenges for all businesses, including law firms. The pandemic forced many firms to revisit how their teams work and how they can navigate a sluggish and unpredictable economy.

Moving forward after the turbulence of 2020 and 2021 will undoubtedly present more challenges to law firms, a reality that’s reflected in the most recent small law firm business leaders report from Thomson Reuters.

The survey polled chief officers, executive directors, firm administrators, and finance managers at small law firms (with 50 or fewer attorneys) to get a sense of their concerns in the current economic climate.

Not surprisingly, outside economic circumstances topped the list, but law firm professionals are also concerned about internal issues and their firms’ abilities to properly leverage technology.

External Economic Pressure

The overall state of the U.S. economy is clearly a concern for many business professionals at small law firms. General economic pressures topped the list of perceived risks to law firm profitability, with nearly one-third of respondents citing it as a high risk and 55% citing it as a medium risk.

However, it’s not just overall economic trends small law firms are worried about. Sluggish local economies, litigation costs, and business occupancy costs are considered high or medium risk by at least two-thirds of survey respondents.

Internal Issues

The second-highest risk for law firm profitability cited by respondents was underperforming lawyers. Twenty-seven percent of respondents considered this a high risk, and another 39% categorized it as a medium risk.

Lawyer recruitment and retention along with overall employee productivity were cited as either high or medium risk by more than half of respondents. Law firms are also concerned about the economic situations of clients, with late payments and client credit risks specifically listed as a high or medium risk for the business professionals polled.

Failure to Adequately Leverage Technology

Insufficient leverage of technology was only listed as a high risk for 9% of those surveyed, but 39% considered it a medium risk to profitability. It’s not surprising that 82% of small law firms plan to increase the use of technology to manage their overall costs.

The reasons respondents said they hoped to better leverage technology included cutting costs, reducing time to complete tasks, providing competitive advantage, and reducing human error.

At backdocket, we know how beneficial the right technologies can be for law firms’ bottom lines. Firms that don’t fully utilize technologies to be more efficient and provide the best service possible are putting themselves at a major disadvantage.

We’re Big Believers in the Impact of Tech at Small Law Firms

Large law firms might be able to withstand economic ups and downs without adopting new technologies, but it’s clear that small- to mid-size firms don’t have that luxury. They need every advantage possible to compete and grow.

At backdocket, we work closely with growing law firms to make sure our practice management software is improving the way they work. If you’d like to learn more about the many benefits of using backdocket, don’t hesitate to contact our team today to schedule a free demonstration.