Those of you who follow me on the Financially Simple blog, podcast, or YouTube channel know that I spend a lot of time talking about the 8 key areas of business. These are the areas that have a direct impact on the value of your company. Well, recently, I’ve been walking through these areas and giving you a glimpse at what they look like in my own businesses. Specifically, I’ve discussed the KPIs, KRIs, and PIs of each area. In today’s entry, I’d like to continue with a look at our legal KPIs.
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If I were to ask you what sales and marketing are responsible for, in a company, you’d probably be able to give me a clear and straightforward answer. Likewise, for planning, people, operations, leadership, and finance. But when I talk about the legal or risk management area of business, many business owners aren’t able to nail down everything that goes into it. That’s because the legal side of your business is a highly complex and nuanced animal. To get a better idea of what goes into our legal KPIs, I spoke with the incomparable Jeff Jeter.
Legal can be anything from insurance to purchasing contracts. Although there are many different sides of a legal department, the overall function is to eliminate risk. A great legal department is one that is proactive and forward-thinking. It can protect you and your business from most of the dangers that come with owning a business. But how do you measure how well your legal department is performing?
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Unlike finance, marketing, or sales, the list of legal KPIs, KRIs, and PIs is relatively short. You see, each of those other areas has metrics that are pretty easy to measure. However, it’s difficult to assign numbers and percentages to your legal department. Therefore, tracking and measuring the performance of it can be tricky. In fact, the best measurement for your legal department is if there is nothing to measure. With that in mind, let’s take a closer look at the three key components of the legal/risk management department.
As I said, the best legal KPIs are the ones that leave nothing to measure. So, when looking at the team component of our legal department, we use a “yes/no” checklist. In other words, do we have the protections and legal documents in place? Is there something missing? We can look at each question on the checklist as a yes or no question. So, what type of questions are we asking?
The questions are simple. For example, if I were to be injured and become disabled in an accident, is the business covered? Am I covered? Do we have protection in place for losing a key employee? As the creator of Financially Simple, do I have protection over my intellectual property? Each of these questions is easy to answer. Either we have the protections in place or we need to put them in place.
Now, these protections aren’t entirely made up of insurance policies and legal contracts. Just as important, is cross-training and the decentralization of the business owner. I recently spent three weeks out of the office because of COVID-19. Fortunately, my team is trained in all that needs to be done to continue operations. Because the business doesn’t depend on me for its basic day-to-day operation, we were able to mitigate the threat that my absence could have posed to the company.
It might surprise you to hear that we have four different attorneys at Heritage. Because of the nature of my business, we deal with compliance issues. We have a lot of regulations and guidelines to follow from the state and federal government, SEC, FINRA, etc. So, we have to make sure that we’re following the rules, not just for the protection of our clients, but for ours as well. Therefore, we have an attorney who is solely dedicated to compliance.
Likewise, we have a tax attorney. I often tell my clients that the Internal Revenue Code (IRC) is one of the greatest wealth-building tools we have at our disposal. By taking advantage of the allowances within the IRC, you can save a fortune in taxes. So, I practice what I preach. I want to pay whatever I owe and not a penny more. Having a solid tax attorney helps me to stay within the law and ensures that I am not missing out on any of the tax-reduction opportunities my business is eligible for.
In addition, we have an attorney who protects my intellectual property. This includes the copyrights for my books, various curriculum that I have written, and anything else that could be considered IP. Finally, we have a corporate attorney. They manage all of our contracts and handbooks, as they relate to team members, customers, and even vendors. So, as it pertains to the team, having all of these protections in place and not having an incident is the best legal KPIs.
At Heritage, we have a lot of clients. We serve clients across the United States and even have a few international clients now. They range from comprehensive financial planning and business planning customers to exit planning and asset management customers. So, we have a lot of clients. As such, we have a responsibility to protect their interests.
Compliance plays a role in the protection of our clients, just as it does in protecting our business. With that comes the standard of care. We want to make sure that our clients feel secure and that they are satisfied with the services we provide them. But as I said before, the best indication of good performance in the legal department is having nothing to measure. Therefore, we like to have nothing to measure in terms of client dissatisfaction.
However, things don’t always go as planned and people make mistakes. That’s why we carry errors and omissions (E&O) insurance. Most likely you have something akin to this in your own industry. In the medical field, this would be your malpractice insurance.
Just as you want to ensure the safety and protection of your team and your customers, you also want to provide protection from and for your vendors. Oftentimes, this comes down to contracts. This is why it’s so important to have those relationships and contracts in place with your attornies. You could see measurable downtimes due to a lack of supply or even technology. Regardless of your industry, you can’t be in a period of no productivity because of a vendor supply or vendor technology problem.
Unlike the other 7 key areas of your business, legal KPIs are measured by their immeasurability. If you don’t have risks to measure, then you’re probably doing pretty well. However, if you’ve already got a plan in place and you’ve ensured that you’re protected all around, it doesn’t mean you’re finished. Risk management should be an ongoing conversation with regular review periods. But how often should it be reviewed?
According to Jeff, this is dependant upon your individual industry. At a minimum, you should be reviewing your risk management plan on an annual basis. However, some industries will demand more frequent audits. For example, at Heritage, we have compliance audits on a monthly basis due to the nature of our business.
So, when you’re reviewing your plan, go through the same yes/no checklist but add the word, “updated,” to the question. For example, the question, “Do you have a buy/sell agreement,” would become, “Do you have an updated buy/sell agreement?” I use this as an example because we just went through a buy/sell agreement with a client. They had a buy/sell agreement for $900K but the business is now worth $6MM. Had we not updated the agreement, each partner would have received $450K. So, regular review is very important.
As you can see, legal KPIs aren’t like other performance indicators. But just because they’re different doesn’t mean that they aren’t vital to the success of your business. Take the time to carefully review your legal/risk management department. A small headache now could prevent catastrophic damage to your business, your clients, your vendors, and even your reputation.
Folks, life is hard. That’s why we need to mitigate the risks we face in our businesses. But life is still so good. Dealing with attorneys, legal contracts, and insurance can be frustrating, but it doesn’t have to be. By reviewing your risk management plan, you can make measuring your legal KPIs at least, financially simple.
Are you and your business as protected as you think you are? Do you need help reviewing and updating your risk management plan? Schedule a meeting with us. The team at Financially Simple helps business owners to protect, improve, and grow their companies on a daily basis.