Lawyer's Guide: How to Automate Company Formation Packages

We’ve spoken to countless business lawyers who help their clients with company formations and continue to hear the same thing. Making a profit while performing this type of work is hard.

New business owners searching for a lawyer to help them get organized are often looking for a deal. Since they haven’t started to make money yet, they don’t have much to spend on legal fees. Because of this, lawyers will offer competitive rates to attract new businesses. They will draw up shareholders’ agreements, by-laws, resolutions, and more for highly affordable fees. Sometimes, the firm will only break even, or even lose money, in the hopes that the client eventually requires more lucrative work down the line.

Unfortunately, it’s widely known that most new businesses fail and, thus, don’t end up requiring additional services. Furthermore, once a new company is formed, a lot of additional legal work needs to be done to get them off the ground. They’ll need employment agreements, sales contracts, NDAs, etc. Generating these vital documents can’t be that profitable either as the business still isn’t making much money and so they must still be done at lower fees. Sure, you could try asking for a higher fee - but that runs the risk of the client soliciting another firm. Even worse (and more likely), the client might try and do the legal work themselves with tools like LegalZoom. We all know how that turns out.

While this work is fairly routine and a great way to bring clients in the door, lawyers need to ask themselves if providing these services is really helping their firms in the long run.

Here’s the good news: we are seeing a massive shift in how firms are capitalizing on this type of high volume, low margin work. By evaluating your current processes and embracing best-in-class technology, you may be able to lower your fees for these types of services to more effectively compete, all while continuing to make a meaningful profit. 

Read on as we outline how to determine if your current process for new company formations is making you money and what you can do to boost profitability. 

Complete an Internal Assessment:

1. Figure out which of your services fall into the low-margin, high-volume category. Some examples might include:
   

• Incorporations
• NDAs
• Employment Agreements
• Shareholder Agreements
• Elections and Resolutions

These documents can be critical in starting a new company but can also be time-consuming for lawyers to generate and don't command a high rate. Start a spreadsheet and list the services that fall into this category.

2. Map out your process for performing the services that you listed in the previous step. Here are some steps you can take and questions you can ask yourself to get a better idea of what is involved.
   

• Discover what information you need from the client to perform this service. Take note of the work it will take to acquire the necessary information, such as phone calls, emails, or meetings.
• Understand what documents are needed to complete the service. For example, are they standard documents or simple online forms, are they straightforward templates or do they require customization, and will the output of the service be routine or unique to each client.
• Find out who is involved in gathering the information and preparing the docs
• Uncover how much time it typically takes you to gather all the information required.

Add the answers to these questions to your spreadsheet in a new column beside each listed service. Take note of how much time and energy you spend fact-finding, it will be important later. 

3. What is your billing method?

• How are you charging for each service, are you using a flat fee, hourly, or other model?
• If you are charging a flat fee: Is the fee enough to cover the labor costs to perform the service? How much of a profit are you making on average?
• If you are charging an hourly rate: Does it typically take a similar amount of time to perform the service, no matter the client? Could a flat fee rate work for this service or is hourly billing necessary?

Add the answers to these questions to your spreadsheet in a new column beside the answers in the previous step.

Analyze the results

Once you have laid out all of the above information, now what?

Check to see if any of the services you listed have the following features:

• You already have or can easily collect the required information by email
• The produced documents are fairly standard/routine 
• You could be charging flat fees.

If the service checks these boxes, it is likely that you have room for legal automation within your process and can dramatically increase profitability on these types of matters.

For the services that don't match the criteria above but you find are not profitable, it is possible there are other methods you can use to help change that.

• Can some of the work be delegated to a team member with a lower billing rate? Can you free up more time for the team members who charge higher rates?
• If there is standard information you collect or a set of questions you ask that could be done through an online questionnaire instead of over the phone or with back-and-forth emails?

Consider the Benefits of Automation 

Imagine a world where you can send a simple questionnaire to your client with the click of a button, gathering all necessary information without the endless loop of emails and phone calls. And, with document automation technology, you can use their responses to instantly generate the documents they require. Or, you can copy their responses directly into an online filing system.

Benefits to you:

1. Reduce the time spent on the client’s file,
2. Limit the chance of making mistakes,
3. Empower junior members on your team or support staff to advance the file forward, only having them call you in for the final review.
4. Create a highly repeatable process with a consistent amount of hours that you can scale.

Benefits to your client:

1. With mobile-friendly questionnaires, clients will find it way easier to provide information compared to crafting a complex email or getting caught in telephone tag.
2. When automation is used, services can be performed much faster. You know how much clients rely on quick service!
3. By offering flat-fee billing, your clients will better understand how much services cost ahead of time. We’ve found this to be a big selling point.

Take Action

Through the benefits outlined above, you could significantly reduce the amount of time it takes you to do your work while decreasing the cost to your firm. Once you have figured out how to  reduce the costs to perform your services, you have a few options for how to adjust your pricing: 

1. Start or continue to charge a flat fee for the service and increase your profit with the new time savings.
2. Pass some of the savings to your clients, making your services more affordable while still maintaining profitability. This will help you stay competitive over the faceless wave of self-serve options and attract a higher volume of clients which you can now effectively service.
3. Implement a monthly subscription option for clients to create a steady stream of revenue. The predictability and transparency will help your clients better budget for legal work as well. To learn more about setting up Subscription Legal Services, check out our eBook!
   

Now that you’ve determined which services you can provide at a lower cost, implemented automation, and adjusted your pricing (if necessary), you should be well on your way to increasing profitability when performing new company formations. If you would like to learn more about how Rally can help you embrace automation, book a demo, we’re happy to chat!