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 staff persons.  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.  For attorney hires, this can be simpler than for staff hires, since staff persons may not bill directly.  For those staff persons, 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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Wanna hire?  We can help.

The Wyoming State Bar offers FREE law practice management consulting services through Red Cave Law Firm Consulting.

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

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