Few law firms are managed by professional managers. In a small law firm, the expense of a professional manager is prohibitive. Extremely large law firms sometimes employ professional managers, but ethical rules prevent those managers from having an ownership interest in the law firm. The result is that lawyers make nearly all management decisions about the business of a law firm.

Most lawyers are not trained business or management professionals. They went to law school, not business school. Lawyers are trained to solve the problems of other people and this is how they earn a living. Because of these factors, law firm management is sometimes like the cobbler's children; the lawyer is too busy practicing law to pay attention to the business of practicing law.

Financial Management

To survive, law firms clearly must generate revenue — which comes from clients, usually in the form of hourly fees. All law firms have expenses. In addition to employee expenses, there are expenses associated with office space, office supplies, office equipment, maintaining a law library, and continuing legal education. As with any business, these expenses must be paid before the owners of the law firm receive a profit.

The expenses of the law firm are similar to the costs of producing any product. If the cost of producing one hour of legal services exceeds the price that can be charged for that hour of legal service, the law firm will lose money. The financial management of a law firm requires that close attention be paid to controlling overhead costs and setting hourly fees. In addition, the overall overhead costs must be allocated among the income generators of the firm. The method of allocation varies depending on the law firm's approach to cost management.

Not all law firm employees are income generators. Lawyers generate income because they can charge fees to clients. Paralegals generate income for the same reason. Legal secretaries, receptionists, and office assistants do not generate income. In some offices, all overhead costs are divided equally among the income generators. This is the simplest method of allocation. In others, the allocation is based on the relative cost or use of the overhead item. This allocation method is more complicated, but it is usually a more accurate reflection of the responsibility for overhead costs. Whichever method is used, the allocated costs affect the determination of the hourly rate for that income producer's services.

Practice Management

The “law” is a large and sometimes overwhelming field. It includes the statutes and regulations of the federal government and all fifty states, the court decisions in each state, all of the federal courts, and the United States Supreme Court. It includes everything from regulations governing the approval of new drugs to the effect of international treaties on the rights of fishermen. It is broad and varied and no one lawyer can know all the law.

Most lawyers in private practice tend to limit their practice to a few areas of the law known as “practice areas.” Just as medical patients often seek out a specialist physician, clients tend to hire lawyers who have specific expertise and experience with their type of legal problem. Lawyers will often decline to represent clients whose problems are outside their expertise. On occasion, those clients are referred to other lawyers with the expertise the client requires.

When a law firm has more than one lawyer specializing in a specific area of the law, it may designate those lawyers as a practice group or department. In very large firms, each department will include paralegals, associates, partners, and a department chair.

Knowing the practice management approach of a law firm can influence the job choice of a paralegal. Paralegals in very large firms tend to specialize as lawyers do. A paralegal employed in the real estate department may never have the opportunity to assist with drafting a will or handling an adoption. In general, paralegals who prefer assignments in several different aspects of the law gravitate to smaller law firms.

Systems Management

Each law firm must develop approaches to the practice of law that facilitate that firm's ability to meet their client's objectives. These approaches must be consistent within the law firm so that the same management issue is approached in the same way for every client. These approaches, or systems, must be monitored to ensure compliance and to respond to problems.

Systems management concerns itself with procedures, such as how new client files are opened, how client conflict information is stored, how client expenses are incurred and paid, and what deadline docketing procedures are followed. In some firms, these systems are meticulously documented in a procedure manual. In others, established procedures are handed down from employee to employee. A paralegal must understand and follow the systems procedures of the law firm. Most often, such systems are the product of much thought and planning by experienced lawyers. In some law firms, the procedural systems are designed and maintained by paralegals.

Employee Relations Management

The managers of law firms must ensure that every employee of the law firm is dedicated to providing quality legal services to clients. New employees must be hired and trained. Existing employees must receive assignments and performance evaluations. Changes in the law, additional client needs, or shifts in technology may require additional training or education for some employees.

To compensate their employees, law firms must decide on a salary structure and determine the availability of benefits. Some firms opt for a rigid salary and benefit structure, while others prefer greater flexibility. Committees most often make decisions about employee compensation.

Strategic Planning

Increased competition for clients means that law firms cannot wait for clients to come to them. Careful planning allows a law firm to increase in size and profitability. A comprehensive strategic plan might also include professional development for staff or the expectation of increased salaries. A well-developed strategic plan should begin by defining expected client needs for legal services. The strategic plan should include specific approaches to meet those needs. A law firm without a defined strategic plan has not maximized its chances for ongoing success.