5 Cost Control Strategies to Manage Law Firm Spend

By Chris Krubeck

Lawyer implementing cost control strategies for their firm

Reducing your law firm overhead goes hand in hand with better serving your clients. After all, with more consistent cash flow, you can spend more on the critical resources, tools, and staff that make or break your reputation.

Even with a steady influx of clients and cases, many law firms struggle to maintain steady revenue. Over time, even small leaks can lead to missed opportunities and unsatisfied clients.

Effective law firm cost control management is crucial for improving your firm’s cash flow and client experiencesit also sets your firm up to scale growth.

You may be wondering: How can law firms save money? Where’s the best place to start with reducing your expenses

In this article, we’ll give an overview of the unique challenges of managing law firm cash flow, why cost control strategies are important for growth, and five cost control strategies and best practices that can help your law firm achieve greatness.

What is Cost Control for Law Firms? 

Cost control refers to the various ways that law firms try to optimize their processes and reduce expenses in order to increase profitability. 

Cost control refers to the various ways that law firms try to optimize their processes and reduce expenses in order to increase profitability. 

This is done by tracking billable and non-billable hours, law firm expenses, cash flow, and other metrics, then implementing improvements based on your findings.

Unique Challenges for Law Firm Cost Control 

Finding ways to control law firm costs is a pillar of any business. However, unlike a retail business, the ethical and financial limitations of legal finance management create some unique cost control challenges.

1. Lack of Control on Profit Leakage

“Profit leakage” refers to the various ways that businesses lose expected income. Just like a leaking pipe, a few small (but consistent) drips may add up to a much bigger problem over time. 

“Profit leakage” refers to the various ways that businesses lose expected income.

Here are the top sources of law firm profit leakage:

  • Inconsistent or inefficient billing practices
  • Manual receipt tracking and data entry
  • No time or expense tracking tools
  • Not scoping work correctly

Without quantifiable and accurate methods to track and bill for your time and scope work, you may be undervaluing your services—that adds up in the long term.

2. Lack of Insight Into Spending

Without a clear view of your monthly spending, you may be surprised by unexpected end-of-the-month expenses. This can be devastating for a growing law firm and may force attorneys to shift attention away from their clients.

3. Uncaptured Law Firm Expenses

To effectively serve clients, law firms employ many tools and outside help. With so much on their plate, oftentimes lawyers inadvertently take a set-it-and-forget-it approach for things like subscriptions and recurring services. 

Or, they forget to account for some expenses altogether, such as not tracking mileage and parking fees when driving to court.

These uncaptured and untracked law firm operating expenses can lead to significant overhead costs that are hard to diagnose and fix. Capturing and categorizing your firm’s expenses is the first step to improving your firm’s financial health.

4. Reimbursable Case Expenses Missed

Many lawyers live in fear of losing track of an invoice or forgetting to enter billable work into their case management system. After all, why do all that hard work if you aren’t getting paid for it? 

When your accounting, time tracking, and billing are spread across disjointed systems, it becomes a lot easier for billable work to fall through the cracks. Add to that the time wasted on manual data entry, invoice follow-ups, and other accounts receivable (A/R) processes, and you may find you’re consistently losing track of hard-earned income.

When your accounting, time tracking, and billing are spread across disjointed systems, it becomes a lot easier for billable work to fall through the cracks.

5. Inability to Enforce Budgets

Setting a budget is a great way to set quantifiable revenue goals, increase law firm cash flow, and grow your business over time. However, you may find yourself constantly playing catch up as you try to bill clients, track law firm operating expenses, deal with unexpected bills, and more. 

In other words, in the absence of historical financial data and key law firm performance indicators, which serve as a fiscal north star, sticking to a budget is nearly impossible.

6. Manual Receipt Tracking

Some firms have been slow to adopt digital financial tools —and it shows. Manual data entry and receipt tracking are error-prone and time-consuming. Lawyers who still rely on old-school spreadsheets or antiquated software spend significantly more time on non-billable administrative work.

Why Is It Important to Have a Law Firm Cost Control Strategy?

Why are you not as profitable as expected? It might be because you don’t have an effective law firm cost control strategy in place. In truth, understanding how law firms can save money is one of the areas where many lawyers struggle. After all, you went to school to practice law, not manage finances. 

Here are the top reasons your law firm should implement a cost control strategy:

  • Peace of mind: Gain confidence that nothing has slipped through the cracks by ensuring your expense management, time tracking, and billing data are centralized in one place. 
  • Increased profits: Accurately tracking your case-related expenses can help you identify areas for growth and improve your cash flow.
  • Reduced financial risk: Even unintentional misuse of funds can land law firms in hot water leading to  IOLTA compliance violations and lost reputation. Protect your firm by taking control of your finances. 

4 Strategies for Law Firm Cost Control

Exceptional work and happy clients are the cornerstones of a successful law firm. Implementing effective cost control strategies isn’t there to limit what you can do, but enhance everything that already makes you great.

Below are our top four strategies to take control of your finances.

1. Evaluate Law Firm Costs, Profitability, and Revenue Leakage

To establish a law firm budget, you first need a comprehensive view of all of your invoices, expenses, and billable hours. Integrating case management software into your daily processes is a good way to start. This will streamline things like expense and hour tracking (for both billable and non-billable tasks). 

To establish a law firm budget, you first need a comprehensive view of all of your invoices, expenses, and billable hours.

Most importantly, it will give you quantifiable data to work with. Once you categorize your various expenses and revenue sources, you can hone in on the areas where you’re underperforming. Focus on setting financial goals that are trackable and achievable within a set period.

For instance, if you find a major area of revenue leakage is inefficient accounts receivable (A/R) management and billing, you can set a goal of reducing the hours spent on billing by 20% in the next quarter. To accomplish that, you may consider investing in automated billing or digital payment tools.

2. Implement Law Firm Cost-Saving Measures

Unnecessary expenses and services will slowly but surely eat away at your profits. With a centralized view of your expenses, receipts, billable hours, and other financial data, you can determine the cost-saving steps your firm needs to take—and those it doesn’t. 

Instead of arbitrarily cutting costs, leverage technology to make data-driven decisions. Common areas of focus when reducing law firm overhead include:

  • Manual tasks: Are there tasks like billing and scheduling that could be automated? Could legal software help you save time in areas like these?
  • Unused service subscriptions: Many of us regularly pay for various software subscriptions, answering services, and more. Are you using all of them? Are there duplicate services that could be cut?
  • Office space: An increasing number of firms are going remote because it reduces real estate costs, and clients often prefer online interaction. 
  • Ineffective marketing: Lead-tracking will help you determine which of your advertising methods were effective and which were duds. This helps you spend more strategically on marketing moving forward.

3. Optimize Law Firm Cash Flow

Law firms have unique cash flow challenges because, in many cases, any profit from your hard work is unrealized until it’s actually billed and paid. It’s easy to get caught up working with current clients and bringing new ones in, as unpaid client bills can start to add up.

An inefficient or outdated accounts receivable process is one of the biggest culprits. Strict payment terms, unresponsive clients, and/or manual processes can all account for a consistently high A/R. 

Implementing a legal payment solution can significantly improve your cash flow by automating many billing tasks and making payment more convenient. This removes the burden of following up with clients and provides the tools necessary to set up client-friendly alternative payment structures.

Implementing a legal payment solution can significantly improve your cash flow by automating many billing tasks and making payment more convenient.

Having a simplified and modern billing process can increase your available funds and provide more stability.

4. Monitor Law Firm Financial Performance

Do you know how healthy your firm’s financial outlook is? A lot of law firms measure their success by caseload and number of clients—but the truth is, that doesn’t necessarily indicate a healthy cash flow. 

Regular financial reports are incredibly important to get an honest, bird’s-eye view of your law firm’s performance. With custom reports, you can both determine the financial health of your business and narrow down specific areas for improvement.

Leveraging Technology for Cost Control 

You can’t execute an effective cost control strategy on instinct or hunches alone. That’s why leading law firms leverage technology to track KPIs and optimize their daily processes. Legal billing and case management software is helping law firms of all sizes stay competitive and increase profits.

Here are a few of the ways technology can help save money at your law firm:

Monitor Firm Spending With Dashboards

Dashboards are visualizations of various types of data in the form of graphs and statistics. Reports on modern spend management software for law firms can give you real-time insights into all of your expenses.

Combining spend and case management solutions allows you to spot trends and find actionable areas for improvement. Many software solutions will also let you integrate your existing accounting and case management solutions so you can have a centralized view of all of your data.

Dashboards are also a great way to monitor your firm’s performance at a glance without having to spend hours manually inputting data and running equations on spreadsheets.

Digital and Paper Receipt Tracking

Manual receipt tracking is one of the primary forms of profit leakage in law firms. Receipts are often lost, which means you can’t get reimbursed for common expenses.

Manual receipt tracking is one of the primary forms of profit leakage in law firms.

Law firm spend management software, like MyCase Smart Spend, can help you simplify your expense tracking and facilitate reimbursement. In MyCase Smart Spend, any purchase will send out a text message that prompts firm employees to categorize the expense and take a picture of the receipt so that it’s tracked ASAP.

Automatically Limit Spending in Some Categories

Every day, you have you pay for various expenses, from postage and court filing fees to office supplies and various other costs. Over time,  you may be surprised how this can add up. 

Credit cards are useful for handling business expenses but can become a source of profit leakage when spending isn’t carefully tracked. Modern legal spend management tools can help cut down on careless spending by setting spending limits. Spending limits can be set per purchase category, employee or based on the time of day, reducing your financial risk.

Track Case-Related Expenses

It’s impossible to understand your law firm’s overhead when your expense tracking consists of a jumbled stack of receipts, a spreadsheet, and maybe an old filing cabinet. Expense tracking software centralizes all of your expenses and categorizes them.

A centralized view lets you see what is contributing the most to your overhead and opens up areas to strategically cut costs. 

Law Firm Cost Control With MyCase Smart Spend

When costs get out of control or slip through the cracks, law firms are limited in their ability to effectively serve their clients. In other words, implementing smart cost control measures is about more than profits—it’s about achieving better client outcomes.

The first step of effective law firm cost control is visibility. Modern technology like MyCase Smart Spend gives law firms of all sizes a comprehensive view of their finances, along with actionable insights on how to improve profitability.

MyCase Smart Spend is the first spend management tool built specifically for law firms, with features that help law firms simplify the way they track expenses and bill clients. 

Ready to see how it works firsthand? Schedule a free 10-day trial of MyCase today.