Make More Rain : cash flow issues, productivity

Cash Flow An Important Metric For Law Firms

Admin — Thu, 10 Apr 2008 07:00:03 GMT

No matter how much you work, until you convert it to cash it is worthless. The average days in the law firm cash flow cycle (from worked to collected) is 169 (source: 2007 Law Firm Economic Survey from LexisNexis). Shortening your cash flow cycle has a positive impact to liquidity and thus your cash flow cycle should be measured.

There are two metrics that need to be measured: days to bill and days to collect. Determining these numbers on a timekeeper level identifies those timekeepers who are efficient and those who aren't. The opportunity then is to set a standard and work towards compliance by all timekeepers.

What is this standard? It depends on the area of practice. Many insurance companies just won't pay under 60 days of accepted electronic invoice and will only accept these invoices quarterly. In this case, 150 days isn't so bad. Some areas of law (many domestic relations situations come to mind) should, by default, be prepaid. Any work in process should be billed immediately and applied against the prepayments. In these cases a cash flow cycle of 60 days should be cause for concern.

Tools such as Juris from LexisNexis' Active Information can help you track this key performance indicator so that you can improve your liquidity.

We have begun taking submissions for the 2008 Law Firm Economic Survey. If your firm is interested in participating, please contact Brian by clicking here.

Law Firm Pricing Management

Admin — Thu, 21 Feb 2008 08:00:46 GMT

One of the more common questions I hear asked by attorneys is how to set their rates. Many attorneys raise their rates periodically but not as part of a strategy to maintain or increase margin. Pricing management is addressed in detail in an article in Managing Partner Magazine titled Pricing Management. Noting that most firms still use a "reactive" approach to pricing, the article suggests instituting a pricing management function within the firm closely tied to the finance and marketing functions. A systematic approach is recommended that positions pricing with your strategic goals.

According to the article, firms should prioritize consideration of the price it will charge for its services and to ensure that the firm’s value and pricing propositions are constantly reviewed and improved upon, and communicated to clients at all levels of the firm. Firms should manage the pricing function around three levels: industry, practice and engagement level.

Industry Level: invest in understanding how variables drive supply and demand for legal services in your particular industry of practice.
- Systemic drivers: focus on short and long term considerations in the industry affecting client demand.
- Service delivery: leverage your firm's technology and skills as value that sets your firm apart
- Client patterns: how often they are a source of new business, how well they pay, etc.
- Talent supply: look into alternatives in how services can be delivered to be more cost effective.
- Pricing Czar: A finance director or equity partner should be dedicated to reviewing these drivers and organizing a pricing strategy and structure that meets the financial needs of the firm.
Practice Level: understand the markets that your firm and its practices operate.
- Testing client perceptions: client interviews, surveys, etc to better understand client need and provide better value.
- Discriminating among clients: develop rates that fit the client and practice area, not one-size-fits-all.
- Objectively reviewing fee schedule: periodically check market position as well as reputation of key partners by conducting blind study of key clients.
- Central pricing function supporting practice-group leaders: remove discretion in pricing except at practice group level - discounting should be first approved by pricing czar.
Engagement Level: getting the best price for each matter
- Training: partners need to understand the effect even minor discounts have on the bottom line; develop skill in communicating value.
- Tools: having proper tools to measure performance so as to maximize profitability based on comparison of historically similar matters.
- Systems: develop processes to review efficiency and improve on it to better price similar matters in the future.

Though some feel trapped in their pricing scheme, firms can and should plan how they price their services. With a well-conceived and implemented pricing plan, firms can be proactive and systematic in developing a pricing structure aligned with their strategic plan.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Measuring Law Firm Profitability

Admin — Thu, 14 Feb 2008 08:00:00 GMT

One way to get an idea of your firm's financial health is to report on the firm's profitability. There are many ways to calculate profitability depending on what you are looking to track. In this example, we are taking into consideration the value of fee earners against their cost. The value of an attorney, for the purposes of this post, is the billed rate per hour.

You determine attorney cost per hour by taking the salary of the attorney, the cost of their dedicated resource(s), the cost of their work space, the cost of equipment used, and other incidental costs (not billable to the client) incurred by the fee earner. This can be sticky for some firms where principals may not be agreeable to apportionment of cost. In cases like this or where the firm is more evenly apportioned in staff and office use, a less accurate but easier calculation would be to add up all the general ledger cost accounts (excluding fee earners' payroll), divide by the number of fee earners, then add salary. It is better to do the work and determine actual cost.

Once arriving at a cost per fee earner, reduce to a cost per hour (by dividing cost per fee earner by worked hours billed per year) and then you can use this to subtract from the attorney's billed rate to get the profitability rate. This is excellent indicator of the value of your billable rates and by extension the attorneys charging these rates.

With profitability reports like the one above that is part of Juris' Active Information product, you can determine how much value (in terms of dollars) you are getting for every billable hour worked by the fee earner. You can set margin per fee earner and track the profitability rate against the target margin as well. Efficiency is an important key to higher profits. A report such as this in a historical context helps you track efficiency of the fee earner.

To take it one step further: you can use, for analysis purposes, the collected rate to compare to the cost per attorney. You shouldn't make this analysis until the invoice has been zeroed out (either by payment or adjustment), so this is not really a good indicator of current profitability. But it can be helpful in a profitability analysis of a given client or fee earner. Again, tools like Juris' Active Information can track collected rate and thus make calculating all the formulas above automatic.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Debt Management for Law Firms

Admin — Mon, 11 Feb 2008 08:00:48 GMT

Jim Cotterman, in a recent post, writes on how much debt a law firm should carry:

1. Total debt (including capitalized leases) should be no more than 100% of the net book value of the fixed assets; 90% is okay, but 80% or less is much better.

2. Lines of credit should have a zero balance at year-end and for most of the year. The credit line should not be used to pay partners or be used as the first source of working capital. It should be there to augment working capital, covering unusual economic conditions (i.e., negative economic performance beyond one standard deviation of norm). An available line of credit equal to the funds required to cover one month of payroll (including owners) is one rule of thumb.

Cotterman has written on the subject before. Click here to read an article on law firm debt he wrote in 2003.

As the potential exists for law firms to dip into reserves to offset economic challenges, setting your metrics now to prepare for managing debt can help you avoid financial crisis.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Cash is the Life Blood of a Law Firm

Admin — Tue, 23 Oct 2007 17:11:27 GMT

Partners want all available income distributed every year. But doing so leads to trouble.

One of the toughest jobs managing partners have is the task of convincing partners to leave something on the table every year. Businesses need capital to sustain operations and for growth. James Cotterman lays out the argument for you in his article Firm Capitalization, appearing in the October issue of the online magazine Law Practice Today.

Cotterman even gives you a short quiz to determine if your firm is headed for trouble.

Law firm leaders in midrange law firms often underestimate the impact of cash on their actions. Few really understand the cash gap created by billing and collection practices. In some firms, that gap approaches half a year. The cash gap related to legal staff additions is even greater due to the learning curve and the required filling of the pipeline of billable work. It is quite literally possible to grow yourself out of cash.

Operating cash requirement arise from:

Client Cost Advanced: Client advances can range from about $20,000 per attorney to $100,000 depending on the type of practice

Fixed Assets: The main categories of fixed assets include technology, communications and facilities improvements. The average net investment for midrange firms is around $40,000 per attorney.

Growth: Speaking to a group of administrators in May 2007, Cotterman explained that one of the principle causes for the outflow of funds relates to what Cotterman calls the "pipeline". Even if the additions to the team are immediately fully productive (and they never are), the pipeline has to be filled before income (cash) starts flowing. The typical law firm takes 60 to 70 days to bill for work performed and another 60 to 70 days to collect billed amounts. And as already noted, we aren’t just talking fees. Client expense advances, especially in certain practice areas, can be material. There are only three places for that money to come from—cash reserves, borrowed funds, or the partners. The fact is law firms don’t have unrequired cash reserves. Remove funds intended for partner distributions, and law firms usually have cash reserves of less than two weeks running time. That leaves borrowed funds, which, if available, have to be guaranteed by the partners, or the partners' pocketbooks.

Retirement: Retirements over the next 10 years are going to put new or at least heavier strains on cash than previously experienced. Unprepared firms may find the load too burdensome to continue. In discussing unfunded retirement programs, Cotterman puts it this way: “The benefits paid in an unfunded retirement program are a tax on current income. That tax must be accepted as fair and bearable; otherwise, the current partners shall declare the tax null and void. Unsecured promises to pay benefits will not survive the demise of the firm. Such demise can happen by design—partners vote to dissolve, or by default—key partners depart with their clients, leaving a weakened unsustainable firm behind. Generally a tax less than 5 percent of owner compensation is okay; under 3 percent even better. Over 7 percent is dangerous and over 10 percent probably unsustainable.” Even if the law firm is free of unfunded obligations, capital accounts of retiring partners will become due and, unless funded by new partner contributions, must come out of the law firm's general funds, reducing cash for operations and distribution to remaining partners.

Unknown: Partners often fail to clearly realize that capital protects their future income stream. If the firm goes under, that income stream is interrupted. Granted that as a legal professional, the former partner of a failed firm can go elsewhere and practice law, but personal wealth and income is going to take a nose dive for some time. Law firms with only “two weeks running time” are operating on a razor’s edge. Most investors would find such a risk unacceptable. Leaving something on the table every year is a prudent investment to protect the income and wealth of law firm partners.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

It Is Time to Turn Up the Heat on Billing Attorneys

Admin — Mon, 10 Sep 2007 17:20:29 GMT

Labor Day marks the end of summer, and with its passing managing partners begin thinking about end of year issues.

It is time to turn up the heat on billing attorneys. Ideally, the firm remained focused on billing and collection efficiency throughout the year. Unfortunately, I know from experience that law firms (especially non-AmLaw 200 firms) tend to let work-in-process and accounts receivable accumulate during the year. As year end nears and partner distributions become threatened, unbilled worked that has been wasting away in the firm’s inventory finally get billed. Likewise, partners start chasing delinquent bills with determined effort.

Don’t wait any longer. Take steps now that will encourage partners to clean up old work-in-process and collect past due bills. Circulate a weekly aging report by billing attorney of both unbilled items and uncollected billed items. The comparison by billing attorney puts peer pressure on your side. At month end, you will also want to compare the current amounts to the amounts as of the end of the prior year. The difference will help bring home to partners the extent of billing and collection work that needs to be done. It is also helpful to hammer home that the increase in WIP and AR over prior year-end amounts is money that will not be available for partner distributions unless billing attorneys get busy and reduce funds they have let sit idle—unbilled and/or uncollected.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Attorney Billing and Collection Cycle

Admin — Sun, 06 May 2007 20:17:00 GMT

I spent a good bit of time in the Juris exhibit booth during last week’s ALA conference in Las Vegas. Just about every fourth attendee was an administrator from a law firm using Juris software. One of those attendees had read some of my posts dealing with realization and the benefits of faster billing and better collection efforts. They wanted to see something that could help them in their effort to encourage improved billing attorney performance in these areas. The Juris team member they were talking with used the company’s new Active Information application to create the report shown below.

The report not only gives the viewer a quick snapshot of unbilled and billed-but-uncollected fees, but it shows the average days that each billing attorney is taking to bill and then collect from their clients.

Now here is the important part: all the viewer has to do is highlight and click on a field in the report to see the details. Click on WIP over 90 days and view the clients, then matters, and then the transactions that represent those unbilled items. Likewise, click on A/R and view the bills that comprise the billed-but-uncollected balance.

It is one thing to get a snapshot report like the one above. But converting that into actionable information is a different story. A report can show you a problem, but you can’t do anything about it unless you can get at details to identify the reason for the problem. That is what makes Active Information so valuable. The information is actionable. You can spot a problem and then drill down to its source so you can do something about it.

Why should firm leaders have to waste billable time digging through traditional reports that just tell them what has already happened when they can start getting targeted actionable information in time to change the outcome? If you are not a Juris law firm, talk to your software vendor to find out if they have anything with similar capabilities. If not, you might check into Handshake Software. Handshake, a Juris Alliance Partner, has similar capabilities and works with both Juris and non-Juris software.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center at 877/377-3740, e-mail info@juris.com or go to www.Juris.com.

What to do When Clients Don't Pay?

Admin — Tue, 06 Feb 2007 19:14:03 GMT

Many mature law firms have learned that their attorneys are not the best bill collectors. The job belongs to the administrative staff. At least, it is the administrative staff that should be the front line for routine collection efforts. When meeting with a group of managing partners several months ago, one partner explained that when routine collection efforts fail, the firm still does not let the responsible attorney get involved. A second member of the firm who has no responsibility for the client or case in question is assigned the role of being the “heavy”. Will law firms sue to collect? A growing number say “yes,” in spite of the countersuit risk. They refuse to leave their money on the table.

There are four places to turn to reduce losses from the wasting value of billed but uncollected fees:

Intake Policies and Procedures
Billing Speed and Procedures
Routine Collection Efforts
Non-Routine Collection Action

The first rule is, of course, to screen out those prospects for your services that are likely to be a collection problem and to have a clear written understanding concerning how the client will be billed and how the law firm expects to be paid. The engagement letter should also spell out the consequences for non-payment within the agreed upon terms. Take the extra step of adding to your engagement agreement information to be used in routine collection efforts--clearly state within the agreement who the law firm should contact to confirm receipt of the bill and who to contact in case of a missing payment. Uncollected fees for services are a loan to your client. Where permissible, you can reduce that financial burden and head off possible collection problems through the following steps:

Require advance payment

Require an evergreen trust deposit

Accept credit cards

Automatic debit to the client’s bank account

Installment payment agreement

Etc.

The second rule is to bill promptly for services provided. Your clients’ attitude is if you expected prompt payment you would have billed promptly. If you take your time, they are going to take theirs. Prompt billing conveys a sense of urgency. Consider the following steps for increasing billing speed in your firm:

Bill more frequentl - weekly or every two weeks vs. monthly, etc.
Use e-mail or e-bills vs. paper bills
Agree that on-time payment does not waive client’s right to dispute charges.
Insist that billable information be tracked and reported as worked
Get time in on schedule¾daily, weekly, etc. This discipline needs to be a job requirement—period
Require fee earners to submit time accurately with correct spelling and grammar
Go mobile with PDA devices, like the BlackBerry®.
Use time tracking software that turns your e-mails, appointments, and calls into time entries without the need to reenter
Use time tracking software that passes time entries directly to your billing system once the timekeeper deems them to be complete and correct
Administration must be thorough and accurate in new matter setup¾get it right from the start (use software that automates much of the handling once a client is properly set up, i.e., prices automatically handling exceptions for you, pre-audits entries against engagement rules, produces multiple bill copies to multiple addresses for different purposes, e-billing, etc.)
Test e-mail addresses and e-bill formats before the first billing!
Have the accounting area plan ahead¾prepare a calendar of dates to run bills considering weekends and holidays. Make it a priority and get it done.
Run your A/R statements monthly but separately from the billing cycle
Have your prebill formats set up to give the billing attorney all the information they need when reviewing the billing
Do not run prebills for clients with A/R-only balances¾run only those that need actual review prior to sending
Run prebills (draft bills) on colored paper so they stand out and are easy to identify
As with time entries, prompt review and approval of prebills (draft bills) should be a job requirement with published turnaround times and performance should be measured—and billing attorneys held accountable.
Attorneys should review bills only once¾get it right the first time
Don’t send custom cover letters; send a status letter under separate cover.
Implement procedures that provide for exact attorney and administrative review of initial bills to assure accuracy. Your initial bill will set the client’s expectations. Initial errors, incomplete information, deviations from the engagement rules will create an expectation that the firm’s bills require review, rejection, correction, and rebilling each and every time prior to payment.
Invest in software that facilitates management and editing of prebills
Accounting has to take the initiative to track outstanding prebills and retrieve unreturned prebills
Editing bills should be almost as easy as editing a document and software should handle the accounting and retain original information, changes, and the final bill data.
Use window envelopes when mailing bills
Don’t waste a day by letting bills remain in your mailroom
Negotiate fixed fees with advance payment and/or progress payments

The third rule is to always remember that the majority of past due fees are attributable to clients that pay a little late. Be proactive and work collections before they become past due. When all else fails, the account gets kicked up to the professional staff. The accounting or administrative staff should never threaten. Theirs is a softer role. Persistence in asking for payment and following up when it isn’t received works in almost all cases.

The time to work accounts receivable is before accounts becomes a problem, not afterwards. And the preferred way is to work them as low as possible in the organization. Assign collection duty to someone in your administrative staff who has a friendly phone personality. If you are billing individuals, have him or her call and confirm that they received the bill. Ask if they have any questions. Remind them of the due date. If payment isn’t received within days of the payment date, call back and let them know you haven’t received the check. Ask if they mailed it. If they haven’t, ask if they will place it in the mail that day or bring it by the firm's office.

If your client is a business, get the client's agreement for you to mail the bill directly to accounts payable with an information-only copy to your engagement contact. Let the client know that paying the bill on time will not waive the client's right to raise questions or dispute charges once he or she has reviewed their copy of the bill. If the client insists that the bill be sent to their attention, find out the name, phone number, and e-mail address of their secretary (or assistant). Have the person in charge of routine collection call the secretary after the bill is mailed and ask the secretary to be sure the bill makes it to the top of the contact’s to-do stack. Let the secretary know you will call back in a few days to check on the status of payment.

If you can establish an awareness that if the bill doesn’t get paid, “that nice person” from the law firm will be calling”, you will find that your bills sail through the system. Of course, to make it happen, you need software to keep up with collection activity and payment promises. Working your fees receivable before there is a problem will dramatically lower funds tied up in accounts receivable; 80% of your excess investment in AR is from clients paying a little late.

Rule number four is that when all else fails and the client refuses to pay or simply hasn’t paid, there is usually a reason. Taking strong arm collection steps without knowing the reason is asking for trouble. When routine collection efforts fail to produce results it is time for one of the firm's legal professionals to get involved, but not the attorney or partner responsible for the case or matter. By having an uninvolved legal professional contact the client, the discussion is on a business level involving the unpaid balance. It is not on the professional level dealing with the case or matter. The pursuing attorney will be unfamiliar with the case details, and thus the discussion can not be redirected into a rehash of events. Likewise, the pursuing attorney’s objectivity means that he or she can listen to the client's complaints or position without becoming defensive. The objective should be to work out a payment plan or to reach a fair compromise and settlement of the bill. If the client has the ability to pay but refuses even after the efforts of the pursuing attorney, a next-step alternative is the Fee Dispute Resolution program of your state Bar. When nothing seems to move an intransient client, the firm has to make the decision to sue and risk being sued or to just walk away.

A growing number of law firm are willing to sue in spite of the countersuit risk. They refuse to leave their money on the table.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Law Firm Collections Efforts: Are Yours Too Little Too Late?

Admin — Mon, 15 Jan 2007 19:23:11 GMT

I was paging through an expensive resource guide for managing partners when I saw it. It was A Model Collection System, a semantic or procedural flow chart illustrating recommended collection efforts for a law firm. The chart included the following steps:

Send the client a bill
If there is no payment in 30 days, send a statement and letter and have the lawyer make a reminder call to the client
If there is no payment in 60 days, send a statement and letter
If there is no payment in 90 days, send a statement and letter
If there is no payment in 120 days get serious about collection:
1. Strong letter
2. Lawyer to call client
3. Refer to committee
4. Pursue collection or write-off

“It is too late to close the door after the horses are out of the barn.” Old sayings like the previous sentence are sound business advice for managing partners. Why in the world would collection efforts be directed at past due accounts? Why not close the barn door before the horses get loose and have to be rounded up?

The typical law firm, according to the Juris Economic Survey, has 76 days of unbilled time still in its work-in-process at the end of every month. It takes another 72 days on average to collect for amounts once they are billed. That is a 148-day cash flow cycle. That is getting close to half a year!

Improving collections is achieved through procedures to avoid collection problems rather than trying to solve them after the fact. How do you do that? You do it by directing your energies as follows:

Improve intake procedures
Bill faster—speed up your billing process
Move routine collections out of attorney’s hands
Work accounts before they become past due

For more on improving law firm collections, including a checklist for speeding up billing and collections, read the following previous posts:

Speeding Up Law Firm Billing and Collection

Attorneys Are the Wrong People to Collect Firm Accounts

Collection Tip – Honey vs. Vinegar

You might also reread or distribute the post on problem solving, A Problem Solving Policy for the Law Firm.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Leasing Keeps Money in Law Firm Partner Pockets

Admin — Mon, 13 Nov 2006 19:09:12 GMT

Technology-related investments are on the rise in law firms. It not just for replacement purposes, although Y2K-related purchases are now solidly in the obsolete camp. A host of new technologies in hardware and software provide law firms with new ways to increase income and cash flow. They include both new products and services as well as remarkable new capabilities in the current generation of mainstay law firm systems. Microsoft’s Vista, wireless technology, .NET technology, PDAs like the BlackBerry™, dashboard technology, peer group benchmarking, workflow improvements, automated event and exception tracking, automatic client engagement rules compliance, revolutionary changes in how information is reported and used in law firms—these and other technologies are driving new IT investments in law firms.

They are investments that usually more than pay for themselves, but the payback takes time. My friend John Dondey, at Baytree Leasing, reminded me that there are better ways to use cash than tying it up in depreciating assets such as IT equipment and software. With leasing, law firms have an easy way to finance IT investments without it taking money out of partners’ pockets. With leasing, law firms can avoid upfront payments all together, and monthly leasing payments should be offset by the higher income-producing benefits of the new investments.

With outright purchase, the law firm has to choose between making investments that they know are needed or using their cash for partner distributions. Leasing lets the firm do both. The firm can keep pace with peers and competitors without reducing partner distributions. Leasing provides the law firm with fixed, scheduled payments to simplify expense budgets and provides a hedge against rising interest rates. Cash requirements, including partner compensation, can be forecast and managed with greater accuracy.

Leases will cover the full cost—hardware, software, training, implementation and other related services. Companies like Baytree offer lease facilities that not only cover initial cost but also accommodate subsequent upgrades, add-ons, and technology refreshment during the term of the lease. And the process is super easy. Baytree, for one, has reduced the process to an art form—fast credit approval and simple applications make the process quick and efficient.

There are a number of leasing companies targeting law firms, but when I think of law firm leasing, I think of John Dondey and his team at Baytree Leasing Company. If you are interested in pursuing leasing for your IT investments, you can e-mail John Dondey at jdondey@baytreeleasing.com or call 877-229-4888, extension 224. You can also visit their web site. You can find other quality leasing vendors listed on the Ancillary Products and Services page within the Alliance Section of www.juris.com.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Want To Have A Record Year For Your Law Firm?

Admin — Mon, 18 Sep 2006 17:50:40 GMT

Put a plan in place to reduce the time it takes to bill for services. Couple faster billing with deliberate collection efforts, and law firm partners will enjoy a record income year.

On average, 148 days pass before payment for legal services is deposited in the law firm’s bank account. That is almost half a year’s worth of fees. Based on the 2005 Juris Law Firm Economic Survey, the typical midsized law firm takes 72 days to put a bill in the mail. Another 76 days elapse before that bill is collected.

Because most law firms use the cash method of accounting, neither work in process (unbilled fees) or accounts receivable (billed but uncollected fees) appear on the law firm’s balance sheet. Combined, these represent the typical firm's largest asset.

Law firms don’t pay enough attention to cash flow in a systematic way. They aren’t in tune with the value of unbilled fees and uncollected cash, especially when cash flow seems consistent with past patterns. If you don’t get the bills out quickly and accurately, your firm is going to perform poorly relative to what the outcome could be. Slow billing and collection appears to be a problem with firms of all sizes and across all levels of performance.

There is no justification for slow billing. How do you speed it up? Start the process by asking your accounting and administrative staff for a plan to do just that. Work with them to finalize that plan. Support that plan. Give them objectives (targets) based on their approved plan. Measure performance against those targets. Recognize and reward their accomplishments. Hold people accountable (including partners) for their role in the plan.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

The Making of a Successful Law Firm Business

Admin — Fri, 15 Sep 2006 17:37:00 GMT

We know that measurement alone improves performance. But combine measurement with goals and plans to achieve those goals and the whole ball game changes. Planning, goal setting, measuring, and accountability go hand in hand with increased management and teamwork. The resulting culture in such law firms sets those firms and their performance completely apart from those firms who are not similarly engaged.

Yet only about one-fourth of midsized firms report that planning is a key component to their mode of operation. Why should you be one of those? Per-partner income for those firms is twice that of the next best performing 25 percent of firms and seven times that of the lowest performing 25 percent.

What do you need to do to become part of that top performing group?

Engage in the planning process
Set goals and objectives
Develop plans for achieving those goals
Measure progress and hold people accountable

Doing the above will require adequate management and foster a team culture.

The above per-partner income information comes from the recently published Juris Law Firm Economic Survey of midsized U.S. law firms. For more information or to purchase the publication, go to Juris Survey.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Advice from Experienced Managing Partners

Admin — Thu, 14 Sep 2006 17:35:00 GMT

I took another look at Patrick J. McKenna’s online booklet, First 100 Days. The booklet is a guide for transitioning a new managing partner. This time, I focused on the quotations collected by McKenna from existing law firm managing partners. These are appended under the heading “Voices of Experience.”

While their advice and wording varied, I did find what I thought was a frequent refrain:

Learn and pay attention to the profit driver

Listen more and speak less

Delegate and support—not every problem needs your solution

Taken as a whole, this is pretty good advice.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Top Five Practice Areas for Midsized Law Firms

Admin — Wed, 13 Sep 2006 17:45:35 GMT

I reported on the results of health care survey questions a few days ago. The same survey asks about practice classes.

The top five practice areas were litigation, insurance defense, corporate non-litigation, real estate, and trust & estates. Collectively, the top five practice areas constitute approximately 64 percent of fees for survey participants. The top two, litigation and insurance defense, accounted for 38 percent of fees.

What I found interesting was the segmenting of practice types by firm size and then partner income. The most profitable firms, the top quartile, had a heavy weighting to litigation at 33 percent of billings, while the least profitable firms were most heavily weighted to insurance defense at 26 percent of billings.

Before you conclude that insurance defense is not profitable, the top performing quartile of firms indicated insurance defense as their second most significant practice area at 11 percent of fees.

What I conclude from this data (along with other survey data) is that insurance defense is still lucrative and growing, but rates are constrained by both competition and pressure from clients. In addition to requiring lower rates, insurance firms are generally slow to pay and frequently adjust bills unilaterally and/or reject line items or entire bills.

Insurance defense can be profitable. A number of insurance defense firms are doing exceptionally well. But matching the profits of other practice areas requires a greater management discipline. Insurance defense firms must focus on leverage. They must eliminate mistakes and delays in billings that are fodder for client adjustments that bring down realization. To that end, some of the higher end business systems, like Juris, now offer software that will audit time and expense entries in real time against insurance client billing rules and instantly notify the fee earner when an entry as proposed would run afoul of their clients’ engagement rules. Bill rejects are eliminated and adjustments are reduced.

The complete survey concerning practice class as well as financial metrics for 2005 can be found in the Juris Law Firm Economic Survey of midsized U. S. law firms. The 55-page survey publication includes results as well as analysis and recommendations for improving law firm performance and increasing per-partner income. The annual Juris survey is provided to survey participants without charge. Others can purchase the survey for $375

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Top 25% of Law Firms Earn Margins Above 40%

Admin — Tue, 12 Sep 2006 18:31:49 GMT

Larry Bodine’s Professional Services Marketing Blog is well worth checking daily. In a recent post, he asks, "Is Your Firm’s Profit Margin 40%?” Then he points out that if it isn’t, it could be, based on his experience working with law firms.

Larry was one the folks who teamed up with Juris, Inc. to encourage midsized law firms to participate in the Juris Law Firm Economic Survey conducted earlier this year. The results are in and Larry Bodine and participants should receive copies of the 55-page survey results and analysis within the next two weeks. The report will be available to others after September 30 for $375.

Firms in the top 25 percent measured by per-partner income had an average margin greater than 40 percent. They didn’t get there by cutting costs or by having a higher than average realization. In fact, their cost per head is higher than the remaining 75 percent of firms. How can they spend more and still outpace other firms in terms of margin? They do it by concentrating on revenues rather than expenses. They generate more fee dollars per head through higher effective rates and better utilization of their legal team.

The Juris Law Firm Economic Survey of midsized U.S. law firms for 2005 identifies 10 important factors that influence law firm financial performance and partner earnings. For more information about the survey or to purchase the 55-page click on the image below.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.