Managing Partner Advocate Summer Issue In The Mail

Admin — Mon, 30 Jun 2008 23:30:57 GMT

The summer issue of the Managing Partner Advocate is now in the mail. This issue is focused on ways to combat the effects of a contracting economy. Highlights include retaining talent, managing associates, planning for the unexpected, measuring marketing activity and measuring timekeeper profitability. There is also a guide to minimizing facilities costs written by guest author Luke Raimondo, an attorney and commercial real estate broker, and a guide on how much debt a law firm should carry.

The summer issue provides excellent guidance for law firms to help improve profitability even as the GDP struggles to grow. If you are a subscriber to the site, you may download the summer issue by clicking here. You may also have the advocate mailed to you at no cost by clicking here and requesting a subscription.

It is with great regret that I am leaving LexisNexis and will no longer be associated with the Managing Partner Advocate and More Partner Income. I took over the blog from Tom Collins in January of this year, a mere 6 months ago. In that time I have moved the site to a new host, completely re-built the blog and have enjoyed record numbers of readers, building on the solid foundation Tom Collins built over the past 3 years. I sincerely appreciate all of you who have read this blog and utilized it as a resource to help your firm.

This is my last post as editor of this blog. I have enjoyed my brief time hosting More Partner Income and hope that you have found value in the posts I have written.

Forecasting Collections and Inventory Management

Admin — Thu, 12 Jun 2008 07:00:51 GMT

In today’s unstable environment, driven by outside economic forces, higher associate salaries, and increased competition, law firm leaders are faced with the tough job of forecasting cash collections. Many existing forecast methodologies focus on production and collection realization. However, these models often fall short because they ignore the other drivers of collections, and do not provide any information about collections beyond the forecast period. A better model:

1) Forecasts bills and collections as they relate to inventory levels thus allowing analysis into the impact of the next period’s collection funnel,

2) Drives the forecast according to the speed of the billing and collection cycle,

3) Isolates the quality of inventory separate from collection timing by analyzing realizations at the time of collection.

A key aspect to understanding collections is to think of the process as an inventory funnel. Each month production is added to the funnel, increasing inventory available to bill and collect. At the same time, bills and collections, as well as write downs and write offs drain the funnel, thus reducing inventory levels available next period. By analyzing this inventory turnover, modelers can focus on the drivers of collections: beginning inventory, production, inventory turnover, and realizations. Consider the following example:

	Last Year		Forecast
Beginning Inventory	$50,000		$60,000
Production	$150,000		$170,000
Total Available for Collection	$200,000		$230,000
Written down/off	$10,000		$11,000
Cash Collected	$130,000		$150,000	(3)
Inventory Turnover	$140,000		$161,000	(4)
Ending Inventory	$60,000		$69,000

Inventory Turnover %	70%	(1)
Realization %	93%	(2)

1) Inventory Turnover/Total Available for Collection

2) Cash Collected/Inventory Turnover

3) Total Available for Collection * Last Year’s Inventory Turnover %

4) Inventory Turnover * Last Year’s Realization %

In this model, the total available for collection is beginning inventory plus production. By comparing the amount available for collection and the ending inventory, the modeler may derive the inventory turnover. Also, by looking at the type of turnover, collected vs. written down or off, the modeler can calculate realization. Applying Inventory Turnover % and Realization % to future inventory, produces a cash collected forecast based on all of the cash drivers mentioned above and provides a starting point for the next period.

Redwood Analytics has helped law firms forecast collections using this and other methodologies since its inception. Our Business of Law Consultants are prepared to help law firm leaders take their forecasting to the next level by sharing best practices forecasting techniques, separating inventory turnover for billing and collection cycles, and capturing the seasonality of collections. In addition, our business intelligence solution is uniquely positioned to help law firms not only improve their forecast, but also their actual results.

Make More Rain : cash flow issues, managing partner advocate

Managing Partner Advocate Summer Issue In The Mail

Forecasting Collections and Inventory Management