Business Competency: Teaching Lawyers "The Business of Law"

Published in Legal Management, September/October 2006

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As law firm administrators are well aware, all organizations – large and small, law firms and non-law firms – have one thing in common: a finite limit to discretionary spending. Non-discretionary spending for debt obligations, insurance, taxes and Social Security (in the United States) is a given. Adjustable spending for such items as leases and staffing is important but can be modified (albeit painfully) if needed. Discretionary spending is that which is not required and could be prevented if it does not serve a business purpose.

What is unique to law firms is the impact so many individuals have directly on discretionary spending. In many law firms, individual partners, even lawyers generally, have the ability to direct discretionary resource consumption, from purchasing new office furniture to charging the firm with personal meals and travel. Left to their own devices, these lawyers would begin to realize that they are in trouble only after the money ceases to come in the door. However, cash flow cessation is usually the last symptom of a downward spiral that started long before, with failure to control spending and manage income. And even the most dedicated and competent administrator cannot direct this process if a firm's lawyers do not understand what is at stake.

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