Many law firms waste considerable time trying to find ways to cut a pie that is too small up differently by implementation of new compensation systems or increasing the size of the pie by decreasing costs. While unnecessary expenses should be reduced - once they are reduced a repeated effort to slash costs proves fruitless as a strategy to increase the firm pie.

Increasing revenue, while maintaining the same expense structure, is the most powerful approach to improving firm profitability.

Some of our clients are telling us that even though they have been growing in terms of clients, billings and revenues they are getting deeper into their credit lines and simply don't have adequate cash to pay their bills. These law firms are caught in the growth-cash flow trap. Growth puts strain on cash and increases demand for additional working capital. There have been many law firms and small businesses that were profitable - but failed due to simply running out of cash. While you cannot escape this paradox - by actively managing your cash flow (timing of the intake of cash against the outflow of expenses) you can minimize the impact of the following traps.

Question I am an associate in a 6 attorney firm in Cleveland, Ohio. I have been a practicing attorney for four years and have been with my present firm since law school. I am considering starting my own firm. What is your advice for someone like me starting up a practice on a shoestring?

Answer: I receive at least ten calls a week from attorneys that are in solo practice or are the sole owner of a small law firm with similar concerns and frustrations. However, there tends to be different needs and challenges depending which phase of development the firm is in. Last month I provided survival tips for the second phase. Here are some tips for Phase III.

Phase III - Partnership Last month I responded to a question concerning starting a new law practice and I discussed the Phase II growth phase and offered tips for building the practice and managing others.

If you are successful in Phase II eventually you must address and face Phase III - Partnership - Internal or external as a part of a growth or succession strategy. Now you must manage a new set of relationships and a new set of skill sets (people skills) is now required.

John Olmstead will be presenting again this year at the Missouri Bar Solo and Small Firm Conference, June 9, 2012, on the topic: - Law Practice Phase Two: Building a Plan for the Next Era of Your Career. We will also have a booth in the exhibit area as well. Drop by and see us.

Are you looking for a quick and dirty checklist to use to review the profitability of your practice. Click below for a copy of our Law Practice Profitability Checkup.

We frequently consult and work with law firm clients working on implementing succession strategies that involve the sale of a law practice, merging with another firm, or hiring lateral talent. If you are looking to join up with another firm keep us in mind. We will be posting confidential listings on our website in the near future.