In the Thomson Reuters Institute’s new "2023 State of U.S. Small Law Firms Report", we see a change in how small firm lawyers are approaching their business
Small law firm lawyers may have finally broken out of the recurring, frustrating pattern they’ve been in for years in which they have struggled to devote more time to practicing law and less time to dealing with burdensome administrative tasks.
That is a key finding in the latest edition of the Thomson Reuters Institute’s State of U.S. Small Law Firms Report.
Where previous editions of the report have frequently been a case of the more things change, the more things stay the same, this eighth annual edition of the report shows that small firm lawyers may be exiting this rut.
This is understandably of critical importance because practicing law — rather than administering to the business, while albeit vitally important — is literally how small firms and their lawyers make their money. The primary service that every law firm sells is each lawyer’s billable time — and the limitations are the number of hours in a day, and how many of those hours each lawyer can devote to billable activities. At the end of the day, being able to record more billable time is an essential way for small firm lawyers to bring in more revenue.
Each year we’ve conducted this survey, respondents have said they are spending too much time on administrative tasks and not enough time practicing law. Indeed, this problem has been at or near the top of listed challenges that lawyers report facing. Yet, despite this consistently being among their top challenges, we had noted a disturbing pattern in which the percentage of time spent practicing law had been declining — until this year.
After holding steady in 2021 and 2022, the percentage of time small law firm lawyers spent practicing law went up to 61% this year, a jump of 5-perecentage points, compared to 56% last year. At the same time, time spent on administrative tasks declined slightly to 9% from 11% during the same time period.
Each year we’ve conducted this survey, respondents have said they are spending too much time on administrative tasks and not enough time practicing law… until this year.
Moreover, small law firms may be on the cusp of significant changes that could affect how they practice law, as well as impacting their potential for better growth and financial performance. Technology is definitely part of it, although not necessarily in the way that may come to mind immediately for many.
Small firms occupy a unique spot within the legal industry, making up the vast majority of law firms, despite their size. Small firm lawyers are both simultaneously legal practitioners and small business owner-operators. Whether a solo-entrepreneur or part of a firm with several dozen lawyers, small firm attorneys must manage and balance both the legal practice and the business side of their firms.
However, potentially significant changes are currently underway, according to the findings of the report. And these changes likely will impact how small firms operate, especially the emergence of new technologies such as generative artificial intelligence (Gen AI) and public-facing tools like ChatGPT that could help firms more effectively manage both the practice of law and their business.
Among the report’s other key findings:
- Increasing efficiency and better cost control are rising as additional key challenges. Firms are taking steps such as making investments in technology to improve efficiency and reduce costs.
- Gen AI is currently a hot topic, but it’s too early to assess with any certainty how it will impact small firms. While Gen AI tools for legal workflow are just beginning to emerge, other forms of AI-driven technology may have more immediate possibilities for assisting with back-office functions such as marketing.
- Focusing on fundamentals such as improving efficiency, reducing costs, and marketing & business development may hold the most immediate potential for further gains in small law firm performance.
For a full discussion of the current state of performance for small law firms and their outlook for the future, you can download a copy of the “2023 State of U.S. Small Law Firms Report” here.