There is no shortage of business advice or financial gurus eager to teach you lofty techniques to improve your bottom line. The problem is, it is basic things such as getting clients to pay up that trip up many law firms. A Firm investigation shows that getting the simple things right is the first route to profit.

Perhaps uniquely for a business service industry which turns over billions of pounds in collective revenue, the legal profession is not only largely devoid of formal business qualification, it is perversely proud of it. Whereas the Chief Executives of the world’s large petrochemical firms didn’t qualify themselves for the top job by mixing test tubes on the lab floor, those at the top of the legal profession’s biggest firms almost universally served their apprenticeship fetching the teatime buns, copying the documents and drafting the deeds. Hardly a Harvard MBA in evidence here, thank you very much, but why on earth not? Despite the law having emerged through a period of greater commercialisation over the past 15 years, a large number of partners remain fixed in the mold of the fee-earning lawyer, rather than business professional, and as a result, basic yet crucial financial decisions (“When is this client actually paying me?”) often fail to be addressed.

Raymond McLennan of Morisons is one of a breed of solicitors with prior business experience gained before entering the law, and accordingly is able to look at his work with a more commercially focused eye.

“If I run a business, I am only interested in three things; the number of customers of the type I want to have, the number of times they come back to me, and the average spend. Anything else I’m not interested in,” he says, arguing that legal firms often undervalue themselves when fixing their fees.

“It is a self esteem issue. When it comes to fees, the price resistance is always in the head of the seller, not the buyer,” he says.

“When you have time recording and hours you are supposed to bill, it is very easy to get sucked into focusing on that and nothing else. 20% of my time is on marketing, and 80% of my time is on the business. Not in the business. I do very little work in the business. I am out finding clients. It is very difficult for some of the older partners. Their head is down, they are working away and they don’t have time to do that.”

Nicholas Scullion, who also worked outside the legal sector before entering into practice agrees that firms could improve profitability by looking more honestly at their working practices, and adopting a more mercenary approach.

“I don’t think that solicitors always look at things in such a simple way. There seem to be lots of justifications and rationalisations from lawyers when they look at figures. There is a complete disassociation in most lawyers’ minds between legal work and fees,” he says.

“People are very obsessed with figures, but at the end of the month are not looking at where those figures came from. It is much better to retain a good existing client who has had experience of your firm, has paid the fees, whom you know and have a relationship with. It is a cheaper way of getting business than looking for new ones.

“Whereas most marketing activity I have seen in the large firms tends to be tendering and looking at new business. In a business like ours, a lot of our clients are one-hit-wonders. Where we miss a trick is looking at that one client and seeing what other services within the firm we can offer them. That is, doing the divorce, house purchase, estate planning and court appearance for them, and then using that client as a lead for others.”

A moderately healthy bottom line may in fact be masking the failure of one of the most frequently overlooked revenue streams for the law firm; payment of fees.

“In a legal firm, cashflow is one of the biggest problems you have,” he says.

“When I worked at a firm in Glasgow, 85% of the year’s fees came in in April because we didn’t have standing orders, didn’t ask for money up front, and in commercial property deals the fees came in at the end, and they can take ages.

“People are embarrassed or frightened for some reason to ask for money for work that they are doing. They want to get paid when the result is in, rather than when the work is done. In our business, we now have standing orders for fees and have outlays paid upfront. From a cashflow point of view, you need to be focused on the time and cost spent on a case, versus what it brings in. Especially when the clients are going bust. If you have a client whom the bank are pursuing and could close down, the last thing you want is to join the queue of creditors, which is happening more and more.

“All we are doing is separating those who are actually going to be paying you from those that are not, and not wasting time doing work that is unprofitable that you cannot afford to do. Solicitors don’t like to talk about money. There is this cultural embarrassment. It seems to be that people don’t want to talk about it as if it is a business. With trainees in particular, there seems to be a complete lack of association between work and fees. Because the managers of the business are not focused on fees, profitability and return on investment, it runs the whole way through the business. When younger solicitors are being trained up, it is never mentioned or discussed, but left to the partners. That really has to change. Lawyers don’t spend a lot of time looking at what other lawyers are up to.”

Raymond McLennan says that a successful business only needs to manage 12 “competencies” rather than juggle 1,000 things, and simplifying how the business is run is essential. He says that firms which have looked at their model from a standing start are demonstrably more profitable from having eradicated established - but nevertheless unprofitable - practices.

“When it comes down to running a business there are certain critical benchmarks that all firms should have. I went to Companies House and extracted the accounts from about 20 legal firms, and what amazed me were the similarities between a lot of them. When you look at the books and accounts, you see how unprofitable they are. One firm jumped out, that has profitability that perhaps you should have, which was Dickson Minto, which broke away a number of years ago and formed a new business, completely from scratch.

“In any legal firm there should only be a few key performance indicators. One of them is the lifetime value of a client. If you retain a client for the lifetime of that client, if they get divorced, they may remarry again. They are going to buy a house again, and a whole load of other things they are going to do again. There are a whole host of things. But you should restrict yourself to five or six key performance indicators. I’ve gone into firms that have had 37. It is just insane.”

Nicholas Scullion argues that focusing on a few key deliverables is crucial, with opportunities often being lost because decision-making partners may be firefighting other issues.

“Focus is absolutely essential. There is a delicatessen in Edinburgh that has just gone into administration. It provides an excellent service and has good branding, but they lost focus on cashflow. Lawyers traditionally have not been too focused on business values. At this moment in time, focus is essential. You cannot focus on 37 things. That is why you have a manager, and give him three measurables -your key performance indicators - that he can focus on, so that when you are having your management meeting with him, you only have a tight agenda. If you are trying to achieve too many things at the same time, you cannot possibly focus on them.”

Mclennan agrees that the objective should be to increase the number of customers of the type you want to have, rather than focus on cutting costs.

“The whole focus on all the staff at work should be on increasing the number of customers, increasing the average spend. And it does feed its way through to the bottom line. We live in interesting times, but most people have lost sight of the basics,” he concludes.