Professional Services Accounting ARTICLE -
Is Your Firm Utilizing Paralegals as Profitably as Possible?

Target Audience: Paralegals, Real Estate Closings, Deposition Summaries, Legal Education, Law Firm Professionals, Lawyers, Law Firm Associates

Paralegals play a key role in the delivery of legal services. They also should play an important role in your firm’s plan to maximize profitability, productivity and efficiency. Let’s look at how to boost the skills and knowledge of these legal professionals.

Analyze financial impact

Paralegals can perform a variety of substantive legal services including:

  • Interpreting legal documents,
  • Assisting at trials,
  • Working with clients, such as attending real estate closings and depositions,
  • Conducting client and witness interviews,
  • Drafting correspondence and pleadings, and
  • Summarizing depositions and testimonies.

As with lawyers, paralegals’ financial impact on the firm is significant. One way to measure it is to apply David Maister’s formula for calculating law firm profitability: Net income per partner (NIPP) = (Leverage +1) (Billable rate) (Utilization) (Realization) (Margin). The five key ratios are:

  1. Leverage: The ratio of paralegals, associates and other nonowner fee earners to partners.
  2. Billable rate: The average billable rate of all fee earners.
  3. Utilization: The average number of billable hours for fee earners in a year.
  4. Realization: The percentage of work done that is billed and collected.
  5. Margin: The firm’s net income expressed as a percentage of the gross income.

Analyzing each ratio helps determine how your paralegals are impacting your firm’s bottom line and which ratios should be modified, either for the long or short term, to improve profitability.

Also, by plugging projected or targeted numbers into the formula, you can test various outcomes. Let’s say, for example, your firm’s target utilization for paralegals is 1,800 billable hours. Next year, you plan to change how your paralegals track time and expect that, as a result, each paralegal will increase billable time by about half an hour a day, increasing utilization from 1,800 hours to 1,930 hours per year. Based on the formula, the change won’t increase your costs and the extra revenue will go straight to your bottom line.

Maximize paralegal power

Paralegals can easily rack up 30 to 40 billable hours per week — if your firm is utilizing them effectively, that is. Here are some ways your firm can maximize each paralegal’s contributions and their total impact on the firm:

Get new associates up to speed. New associates may be confused about the paralegals’ role on the legal team and the kind of work they actually do. These lawyers may lack confidence in paralegals’ abilities and struggle with delegation. Through training and mentoring, you can ensure new associates understand how to positively affect the firm’s workflow and client service through proper utilization of paralegals.

This will allow these lawyers to focus on developing business, honing their skills and mastering higher-level work — all of which contribute to your firm’s profitability. Lawyers may be resistant to give up billable hours, but changing your compensation structure to focus on realization and other important firm goals can persuade them to change their outlook.

Assign the right responsibilities. You can’t maximize profitability if your paralegals are consistently being assigned tasks that are above or below their level of skill or expertise. Consider creating tiers of paralegals, such as junior, intermediate and senior, and prepare specific job descriptions for each category, including the skills required. This will help lawyers assign work properly, empower your paralegals, and be useful when evaluating them for salary increases and promotions.

Send paralegals back to school. Encourage paralegals to participate in continuing legal education and other professional development opportunities, and become specialized in a particular legal area. Subsidizing their education and professional membership costs is a small price to pay to increase their knowledge and skills — thereby enhancing your firm — and demonstrate your commitment to their development.

Provide paralegals with support. Paralegals often spend more time on administrative duties than the more substantive legal tasks for which they’ve been trained, which is a waste of their time and talent. In fact, when possible, provide them with secretaries and other support staff to ease their clerical responsibilities, so your firm can better leverage their time.

Meet paralegals needs

Utilizing your paralegals effectively can produce significant bottom line benefits for your law firm. So help your paralegals help you by providing them with professional development and training, job satisfaction, career paths and respect.

Be respectful

When paralegals are relegated to administrative duties, it’s easy for them to feel overworked and unappreciated. That’s why it’s important to get feedback from paralegals on key areas of the firm. In particular, find out their thoughts for improving client service and profitability. Your firm will benefit greatly from hearing another point of view as well as make paralegals feel like they’re valued members of your firm. This can help increase their job satisfaction, which in turn leads to greater productivity and less turnover.

Find out how our expertise in professional services accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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