Make More Rain : marketing, subscriber content

New Service to Increase Big Business Access to Law Firms

Admin — Wed, 22 Aug 2007 17:32:19 GMT

Midrange firms have the price and service quality advantage over big law but don’t have the access to Fortune 1000 companies. If OnRamp is successful, that is about to change for participating law firms.

The idea behind OnRamp is to create a space for corporate legal consumers to go to find answers to frequently asked questions on very specific topics. The answers on the site are contributed by participating law firms with deep knowledge and expertise in the topics.

The new on-line community will level the playing field. It will not matter if you are solo, a 20-attorney firm, or a firm with 1000 attorneys. The prospect discovers your law firm. Your posted answers establish your credibility. The two of you are likely to do business.

The internet has already increased the accessibility of midrange firms for the corporate buyer. A select number of firms have used blogs to establish national and even global credibility in specialized areas. Corporate buyers increasingly turn to the Web to search for (or to validate the fit of) a law firm experienced in particular matters.

OnRamp is another avenue for the small and midrange law firm to catch the eye of corporate legal departments. It has the advantage of being a central depository of answers to which corporate counsel can go first in their search to match a law firm to a particular matter or style of matters.

My understanding is that Legal OnRamp is the brainchild of Mark Chandler, the General Counsel of Cisco Systems. It is new and not fully operational but is currently accepting content from participating law firms. To become one, you have to first contact the OnRamp team and earn an invitation to participate.

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.

If Not Mandatory Retirement for Law Firm Partners, Then What?

Admin — Tue, 21 Aug 2007 17:33:56 GMT

On August 15, the American Bar Association’s House of Delegates voted to encourage law firms to abandon mandatory retirement policies. The resolution traveled under two flags, the anti- age discrimination flag and the “graying of the bar” flag.

With regard to the discrimination issue, Law.Com noted that “The issue of mandatory retirement has received particular attention because of a lawsuit pending against Sidley Austin. Law firms are anticipating a decision from the U.S. District Court for the Northern District of Illinois in Chicago in an action filed by the Equal Employment Opportunity Commission on behalf of about 30 former partners against Sidley Austin over whether its alleged retirement policy violated age discrimination laws.”

My guess is that this issue’s place on the agenda is due to the increased number of delegates and partners in general that are nearing mandatory retirement age.

From the standpoint of midrange size law firms, the big issue is continuity. For midrange law firms to have a life beyond that of their current partners, there must be an orderly hand-off from one generation to the other. Mandatory retirement is one method of forcing that hand-off. It isn’t necessarily the best, but those in power are often reluctant to give it up.

In an earlier post titled Continuity or How Law Firms Acquire a Life of Their Own, I suggested alternative strategies assuring the hand-off between generations. Without an orderly handoff a law firm fades away or just survives for at least one more generation through an ugly or quiet revolution. We old guys leave one way or another. It needs to be through a win/win arrangement. Continuity planning is most important to the entrenched partners. Without planning for the handoff to the next generation, it is the entrenched partners and their heirs who lose the value of the legal service business they built (or improved) during their tenure.

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.

Law Practice Business Model

Admin — Mon, 20 Aug 2007 17:25:20 GMT

It is time to revisit the heart of this blog, the Law Practice Business Model that David Maister laid out in 1984 as a mathematical expression:

The masthead of David Maister’s blog is Passion, People and Principles. That banner is an appropriate reminder that people, not numbers, drive law firm performance. The financial metrics in Maister’s formula are determined by the passion and principles of the people in the firm. Unfortunately, you can have passion and principles and still fail. You can fail if you don’t pay attention to the numbers. You can fail if people are pulling in different directions without a common sense of direction. That is where leadership comes in. The role of the law firm leader is to get everyone moving in the same direction. Numbers, including those in the Law Practice Business Model are the vehicle for expressing goals and measuring progress. Great law firm leaders understand the numbers. They know what their people do best. They plan, they set goals, they measure performance and they hold people accountable.

Over the next couple of weeks morepartnerincome.com will revisit and update previous posts addressing the key performance indicators for the law firm, including

Price
Productivity or Utilization
Leverage
Realizations
Margin

I often add to any discussion of Maister’s formula that it doesn’t tell the whole story. There are other financial metrics that are important indicators of financial health. In the coming weeks I will cover some of the more important ones, including measures of unbilled fees and billed but uncollected fees.

The chart below illustrates Maister’s law firm model in a more traditional financial statement format.

Changing any of the key performance indicators—utilization (average billed hours per attorney), blended rate (the weighted average rate at which those hours are billed), realization (the percent of the amount billed that the firm actually collects), and margin (the percent of collected dollars left over after payment of all expenses including compensation to equity partners)—alters the average income per partner. Click on the graphic above to download an Excel spreadsheet and see the effect of changing one or more of the performance indicators. Substitute your own numbers for those in the sample worksheet and calculate the increase in income you can expect by improving performance in any of the five variables in Maister’s formula—price, productivity, leverage, realization and margin.

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.

Law Firm Leadership Takes Trust and Ability

Admin — Fri, 17 Aug 2007 18:02:00 GMT

If decisions aren’t being made easily without distraction, then the firm doesn’t have effective leaders. Firms are made up of partners, but if they have not placed their trust in others to make decisions, they are just sharing office space and overhead. Without trusted leaders, the sum will never be greater than the parts.

I would argue that it is the ability to decide that distinguishes the "C" level executive. They understand the law firm. They understand the numbers and what their people do best. But they also have the ability to efficiently assess the circumstances and analyze the issues and then make decisions. They don’t have to be right all the time, but they do shoulder the consequences of their decisions.

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.

Price Management for the Law Firm

Admin — Wed, 15 Aug 2007 17:36:35 GMT

You can’t successfully manage price without knowing what your price is and what is happening to it .That is not as easy as it sounds. Price, like other key performance indicators, is the product of complex forces. Measuring a firm’s effective price is complicated by the fact that not all billings are based on hours work. It is further complicated by the lapse of time between when work is performed and when it is billed. Work billed one period is not necessary the same work that was performed during that period. The mix of fee earners also has a significant impact on the effective price of the firm’s services. It is easy to get lost in the numbers and complexity.

Managing partners turn to simplifying tools and models to stay on top of key performance indicators. One such tool is Rolling Effective Rate. Ideally, rolling effective rates are calculated using only “billed work”. While the majority of work in most midrange law firms is billed based on fee earner hours, some of the work will have been billed as a flat fee. Other work will have been performed under a contingent arrangement or some other creative billing arrangement. The billing method doesn’t matter. What is important is to capture the hours that were invested to produce those bills. Thus, in order to accurately measure rolling effective rates, you need a law office business system that measures the hours worked for bills that have been issued by the firm-collected or not. For accurate measurement, work that is unbilled (still in the firm’s work in process) is excluded from the rolling computation.

Unfortunately, many firms may find that their law office business system is not capable of separating hours between those billed and those unbilled for the selected period. In such cases, the computation uses the hours worked for the most recent 12 months compared to the amount billed for the same period. The computation will include 12 months of work and 12 months of bills; however, on average, two of the work months and two of the collection months will be a mismatch. The distortion will be immaterial enough in most cases to produce a close approximation of the firm’s Actual Effective Rate for the period.

The Excel® spreadsheet below (click on image to download) illustrates the rolling effective rate computation. In the example, the effective rate is computed by personnel type and a weighted average is used to compute the Effective Blended Rate for the firm.

Arriving at the Effective Rate by Personnel type is important for modeling future results and for comparing the firm's pricing to benchmarks of peer firms.

Once we know your effective rate, simplified models can be used to predict the future or test the impact of changes in the number or mix of fee earners. The model can also be used to see the impact of increases or decreases to the firm's effective rates. The Fee Revenue Model shown below (click on image to download) is an example of such a tool.

When it comes to using the Rolling Effective Rate to change future performance, law firm leaders will need more than the firm’s Blended Rate or Effective Rate by Personnel Class. They will need actionable information---the kind of information that they can get from Business Intelligence (BI) tools like Active Information from Juris. They will want to know the Effective Blended Rate by Billing Attorney, for example. They will want to be able to drill down to Blended Rate by Client and Matter. They will want go deeper to view the mix of personnel handling the work. Firms organized by practice class will want to know the Effective Rate by Practice Class and then drill down as needed for actionable information—information that can used to make decisions that change future outcomes.

Modify the Fee Revenue Model attachments for your particular firm and you will have a useful tool for quickly estimating the impact of various changes. Keep in mind that another performance metric will affect the final revenue numbers: Realization. While it starts with what you bill, you still have to collect from the firm’s clients. Write-offs, adjustments and bad debts will determine the final fee revenue numbers.

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.

New Associate Salaries in Midrange Law Firms

Admin — Tue, 14 Aug 2007 17:27:37 GMT

National media, include that targeting the legal community, is fixed on the AmLaw category of law firms—Big Law.

Fortunately, state and local Bar publications provide some sense of the real world in which midrange law firms operate. Likewise NALP, The Association for Legal Career Professionals, keeps a “real world” eye on compensation for legal professionals. NALP reports that only 14 percent of graduates were in that $135,000+ starting salary category. About half of those starting with law firms make less than $75,000. In fact, 42 percent start at $55,000 or less.

Similar problems exist with information when midrange law firms attempt to compare their financial results with others. Most surveys are heavily weighted to the AmLaw group of firms. That is something Juris is addressing by targeting its surveys and the on-line benchmarking service, Juris Insight, to midrange size law firms.

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.

The Lever to Pull to Increase Existing Law Firm Profits

Admin — Fri, 25 May 2007 17:22:48 GMT

As I was driving home from the office today, I listened to a recorded presentation by Brian Glauser of Redwood Analytics.

He indicated that of all the profit levers, the one that law firm leaders could pull to improve existing performance the most was realization. However, he wasn’t talking about collection realization that most law firms measure. He was taking about pricing and billing realization—the lost revenue and profit because clients aren’t being billed for the work performed at the firm’s intended or targeted price. The price in place for the client is either:

1. Discounted: The responsible attorney has agreed to accept the matter or engagement at an agreed-upon price below the firm’s standard rate schedule.

2. Out of Date: The responsible attorney has avoided making periodic price adjustments that would have kept the client’s deal in synch with the general movement in the firm’s pricing structure.

3. Adjusted: The responsible attorney is making unilateral adjustments before the bill is even mailed to the client.

Understand that there are particular situations where one or more of the above three exceptions are justified. But that doesn’t mean that all of the situations or all of the variances from target are justified. Measurement improves performance, especially when accompanied by goals for which people are held accountable. In this case, doing those things can make dramatic improvements in per-partner income.

To pull this profit lever, you need a report that shows hours worked priced at the firm’s targeted (standard) prices compared to what was billed in connection with those hours. The report should show the current month, year-to-date and inception-to-date amounts for client/matters. For midrange firms, it is useful to look at this information by responsible attorney and then drill down to clients and then to matters. It is also useful to be able to arrange the information by both the largest variance and by client/matter name.

Just as a reminder, this measurement excludes collection realization. Little would be gained if we increased pricing and billing realization only to write it off at collection time. So the two measures must go hand-in-hand. Likewise, keep an eye on unbilled fees (work in process or WIP). Keep in mind that no related variance will show up if the client hasn’t been billed for hours left in WIP.

In addition to the more detailed information described earlier, it is a good idea to implement a summary running gage along the lines of the table and chart shown below. I have attached an Excel® spreadsheet template that you can use to implement this summary in your firm. For Juris users, reports comparing billed amounts to their value at standard and negotiated values are standard. Juris® Active Information technology will automatically deliver on-screen views with drill-down capability directly to the appropriate individuals in the firm.

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

Delegation Day in the Law Firm

Admin — Thu, 24 May 2007 17:21:00 GMT

Hildebrandt’s Rees Morrison passes along a simple but clever technique for encouraging attorneys to improve efficiency by finding delegable tasks for non-lawyer members of the team. The idea comes from the corporate world but should work to everyone’s benefit in a law firm as well. The law department asked its attorneys collectively to identify 20 activities that the lawyers were doing but that could be handed off to paralegals, administrative assistants or other support persons.

The panelist sharing the law department’s experience noted that staff members were energized by the initiative. What attorneys were happy to hand off was refreshing and challenging to others. Given the results, the department expanded its goal and accomplishments well beyond the original 20 activities.

I have heard of law firms declaring an e-mail free day to get the team members out of the habit of using e-mail instead of picking up the phone or walking down the hall. So, why not set aside one day per month or per quarter during which time attorneys are asked to identify one to three things they do that could be done by others in the future. Start with partners. Include their secretaries or assistants, i.e., have the assistant identify something that they could do for the partner that would free up the partner’s time for more valuable work. This could involve administrative activities, tasks involving billable work, or even business development activities, including those related to client relations and networking.

I would also suggest that we expand the charge to say “delegate or eliminate”. Parkinson’s Law is always at work in every law firm. For example, there is a natural tendency to add reports and reporting steps, but without deliberate efforts, they are seldom reduced. Thus, Parkinson’s Law is constantly driving non-billable time demands upward and pushing non-revenue producing expenses higher. To offset this tendency, management must be constantly diligent—simplifying and eliminating.

The idea is to take a little time once a month to think about how to do things better. Don’t forget to measure performance and results. Don’t hesitate to reward non-partner participants for ideas that prove to be unusually beneficial.

For the “delegate or eliminate” idea to really pay off for the firm, the mantra of good management applies here as well as everywhere else—plan, set goals, measure performance and hold people accountable.

Modeling the Law Firm's Financial Performance

Admin — Mon, 30 Apr 2007 17:00:46 GMT

While the business aspects of law firms are relatively simple, they are far too complicated to manage without the use of a simplifying model. Don’t confuse a model with a budget. A model is a decision and forecasting tool. It is a simplified financial simulation of the law firm’s business plan. By changing the elements in the model, decision makers can see the impact of certain decisions or changes.

Law firms are relatively simple businesses but are far too complex to manage without a simplified understanding of the key performance drivers of the business. Models can be as simple as the attached shown below:

Models can become more comprehensive, but it is important to keep them as simple as possible. If you get too complex, the relationship of the key performance drivers begins to blur and the model loses its effectiveness as a communication tool.

Click on the above simple model to download the attached Excel spreadsheet. Use it to see the impact on partner income of various changes. For example:

What happens if you increase timekeeper productivity (Utilization) from 1831 hours to 1900 hours?

What happens if you increase the firm's effective Blended Rate from $151 per hour to $165?

What if, through better collection efforts, Realization can be increased from 91% to 95%

What happens if Margin increases or decreases 2 percentage points?

Substitute the actual numbers representing your firm for those used in the example and test the impact of various changes including the number of associations and partners as well as performance-related changes in productivity, billing rate, realization and margin.

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 .

Economic Outlook for Law Firms

Admin — Fri, 27 Apr 2007 17:10:00 GMT

Bruce MacEwen, an economist at heart, reminded law firm leaders that sooner or later, they are going to face another recession. His post on Adam Smith, Esq. noted that the Hildebrandt/Citigroup 2007 Client Advisory anticipates that the 2007 bottom line for U. S. law firms will be squeezed by increasing cost with little, if any, revenue growth over 2006.

Morepartnerincome’s outlook for midrange law firms is more optimistic. Nevertheless, as Bruce reminds us “….we all know one lies in store sooner or later.” The important question posed by MacEwen is, “Will you be ready?”

Prepared organizations not only survive the periodic downturns of a cyclical economy, they prosper in relation to peers. They come out of recessions stronger with increased market shares. Bruce MacEwen’s post includes some examples from the commercial world. Morepartnerincome offered the following 2007 advice in the earlier post Law Firm View of the Economic Outlook for 2007:

While the outlook is for a good year, it may be one best suited to consolidating your gains and strengthening your law firm financial health and operation performance—emphasizing improved planning, workflow efficiency, and the firm’s overall performance metrics. Concentrate on improved effective rates, better scheduling and delegation to the firm’s associates and paralegals as well as on faster billing and collection. Use this period to replace any remaining legacy systems. You don’t want to get caught in recession or downturn with systems that are no longer supported or that become operationally unsound. Nor do you want to have the competitive disadvantage of being behind your peers.

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 877/377-374, e-mail info@juris.com or go to www.Juris.com.

Key Performance Indicator (KPI) Tracking for the Law Firm

Admin — Mon, 23 Apr 2007 17:03:00 GMT

The one consistent message of morepartnerincome.com is that measurement improves performance and that law firms that plan, set goals, and hold people accountable are the firms that consistently outperform the rest of the field. Partners in those firms benefit through higher income. It isn’t all about the numbers. The numbers measure how well the people within the firms are doing the right things and doing them the right way. When that happens, everyone benefits—clients, associates, administrative team, vendors, Uncle Sam, and partners!

The sample Excel® worksheet, shown below, pulls together in one place the macro pieces of business intelligence for the manager/leader. Managers who successfully lead their organization to targeted performance follow a road map. They don’t reach targets by accident. They understand that six to ten key items drive performance and determine the outcome. They don’t spend their time digging through reports to answer the question, “How are we doing?” They know the answer and know it continuously. They understand better than others how one area versus another will affect performance. They concentrate on the main things that determine the outcome.

The image below illustrates use of an Excel spreadsheet (click on image to download) to pull key performance information together into a simplified picture of where the firm is on its road map at any given time. The Variance from plan and Impact columns show how each metric is likely to affect results for the year if the firm remains on its present course.

The KPI tracker shown above uses monthly results and, in some cases, annualized results based on year-to-date information to estimate per-partner income. The Variance and Impact columns illustrate the impact that missed targets are having on the outcome. It is a simplified model for the law firm. Through that simplification, the critical factors that determine income become clearer. The results reflected by the model are, of course, an approximation. Nevertheless, simplified models like the above usually produce more accurate estimates than detailed budgets and forecasts because they focus on what is important.

You can use the attached spreadsheet to implement Key Performance Indicator Tracking (KPI) in your firm. For help in computing the metrics used in the tracker read the following previous posts:

Realization is the most problematic of law firm metrics when it comes to measurement. To better understand this important but elusive key performance indicator, read the post titled Rolling Realization Computation for Law Firms. However, for the purpose of the Key Performance Tracker illustrated above, a simplified computation of “Collection Realization” can be used. You can use the Excel spreadsheet shown below for that purpose.

Click the image above to dowload the Excel template for the above Collection Realization computation should you wish to use this approach for your law firm. This approach to measuring this important metric is discussed in more detail in the prior post titled Measuring Law Firm Collection Realization.

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 877/377-374, e-mail info@juris.com or go to www.Juris.com.

Fallacies about Law Firm Mergers

Admin — Fri, 20 Apr 2007 17:35:00 GMT

While it isn't May yet, the May 2007 issue of IOMA’s Law Office Management & Administration is already out and it identified four misconceptions about the benefits of law firm mergers:

1. It turns out that bigger doesn’t translate to better or more profitable. The correlation between firm size and revenue per lawyer or profits per equity partner is less than 3 percent.

2. Corporate clients do not always prefer large law firms as indicated by a survey of in-house counsels. Less than 30 percent indicated a preference for firms with a national presence while the remainder indicated that what mattered was value.

3. With only a 1 percent share of US legal spending, being bigger hasn’t given the AmLaw 100 law firms a dominant position in the marketplace.

4. Economies of scale are not realized by mergers or size. As one general counsel put it, “I’ve never seen a law firm merger justified on the basis of reducing cost to the client.” As one DuPont lawyer recently pointed out, surveys consistently show that larger law firms spend more on overhead on a per-lawyer basis than small firms.According to the DuPont representative, costs go up following a merger and higher costs aren’t the only negative. “We have discovered that the larger the law firm becomes, the harder it is for the firm to serve us as well as it has in the past."

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 877/377-374, e-mail info@juris.com or go to www.Juris.com.

Collection Realization in the Law Firm

Admin — Tue, 17 Apr 2007 17:00:50 GMT

Realization for a law firm is a key metric. The problem is that law firm realization is difficult to measure and track. Rather than a single metric, it consists of the following:

Pricing Realization: Lost revenue due to negotiated rates
Billing Realization: Lost revenue due to write downs before the bill gets out the door
Collection Realization: Lost revenue due to write offs, adjustments, and uncollected amounts after the client was billed
Overall Realization: The overall lost revenue due to all the above

To better understand the components of law firm realization and techniques for measuring the resulting revenue losses, read the prior post Rolling Realization Computation for Law Firms.

Due to the difficulty of tracking the various realization numbers, most law firms concentrate on Collection Realization and use a simplified measurement. That approach provides only an approximation of the actual metric, but it is, nevertheless, an important and usually adequate tool for modeling law firm’s performance—providing law firm leaders with a key component for predicting future results against established goals and forecasts. It is good enough to alert law firm leaders to a collection problem. It does not, however, shed any light on revenue losses due to pricing exceptions or write downs of work performed. For those indications, most law firms rely on “blended rate” and “utilization” metrics rather than the more difficult to measure pricing realization and billing realization numbers.

The simplified approach for computing collection realization is illustrated by the Excel® worksheet shown below (click on graphic to download):

If you choose to do so, you can use the attached blank Excel template to apply the above measure of collection realization for your law firm.

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 877/377-374, e-mail info@juris.com or go to www.Juris.com.

Which Comes First, Doing the Right Things or Doing Them Right?

Admin — Mon, 16 Apr 2007 17:32:04 GMT

The issue of which is more important, doing the right things or doing things right, has been ringing in my ears since I saw a leading business consultant to law firms shout, “Execution is everything!” from the blog world.

Then as I read Bruce MacEwen’s recent post “ Do The Management Gurus Have Clothes?”, I was reminded of my reaction to that earlier post. MacEwen was writing about Phil Rosenzweig’s new book The Halo Effect, in which the author takes to task many of the popular “management books." Most emphasize execution quality and would make great “managers” of us all by following their methods.

If execution in great management is everything, then great managers could make any bad idea or pursuit a success. It isn’t and they can’t.

Bad execution can rob one of their successes. It can lower results from what is possible. But being in the right place at the right time pursuing the right idea rules the day. Getting the right people on the bus may be the way to go from “Good to Great”, but having the right bus is pretty important to start with.

This is the point where David Maister would probably want to educate us as to the difference between leadership and management. There is a difference. Many leaders are not good managers—if, by management, we mean masters of execution. Leadership has more to do with being in the right place at the right time with the right idea and then, of course, getting people to believe the leader’s vision.

The “Halo Effect” is the tendency of management experts to attribute the qualities of “doing things right” to organizations that achieve great success. Most, I might add, achieved that success by having done the “right things”. Unfortunately, time catches up with us. Once others begin to imitate such success, execution becomes the important differentiating factor. One time “right thing” leaders like IBM, Federal Express, and eventually even Microsoft can fall pray to the imitator with superior execution.

What does all of this mean for the law firm? It is simple: first do the right things! Then work on doing them better. Picking the right areas of law for your place at this time may be the most important decision you make. The primary importance of doing the right things is why planning is so important. Otherwise, you may be working hard to improve your ability to arrive at the wrong place.

When one takes a structured approach to planning, execution is the last thing you plan. First you have to decide where you are going.

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.

Managing Uncollected Law Firm Fees and Expenses: Work-in-Process and Receivables

Admin — Fri, 13 Apr 2007 17:21:00 GMT

Ed Poll, who hosts the blog LawBiz, had an excellent article on effective collections in the April issue of The Bottom Line, published by the California Law Practice Management and Technology Section.

He started his article with a reminder that when the 300-lawyer global law firm of Altheimer & Gray was forced into bankruptcy several years ago, the firm had $30,000,000 in outstanding accounts receivable. Their days to collect billed fees were almost twice the average. Ed doesn’t mention the amount of uncollected funds tied up in worked fees and incurred client expenses that had not even been billed at the time. Those unbilled amounts probably represented another $15,000,000 or more.

The danger of under-managing both work-in-process and accounts receivable exposes most midrange sized firms to an inappropriate risk.

Specific measures and procedures need to be in place to assure that services and client expenses are billed promptly and, once billed, are subject to proactive and aggressive collection efforts. Collections should not be left up to the responsible attorney. Collections should be managed by the firm. The job of accounts receivable management should be clearly assigned and within the administrative or accounting area versus the professional side of the law firm. This subject has been covered in several prior posts including the post titled What to Do When Clients Don’t Pay?

While detailed procedures and policies should be in place for the management of both accounts receivable and work-in-process, law firm leaders should track key metrics involving these important (unusually off balance sheet) assets of the law firm. As with any key metrics, the firm should set targeted goals, track performance against the goals and against benchmarks for peer level firms. When the metrics vary from expectations, those variations should result in top management action.

Two important metrics are Days of Unbilled Fees and Expenses and Days of Billed but Uncollected Fees and Expenses. These two important metrics are also referred to as:

Unbilled Days , Work-in-Process Days, and WIP Days
Uncollected Days, Days Outstanding, Accounts Receivable Days and AR Days

Taken together, the aggregated is sometimes referred to as Fees and Expenses Not Converted to Cash.

Some firms and surveys will exclude expenses and report only days of unbilled fees and days of billed but uncollected fees.

The Excel® spreadsheet below illustrates the use of Excel to tract AR days. The average number of AR days (days to collect) for midrange sized law firms is 76 days according to the Juris Law Firm Economic Survey for the year 2005. All firms can increase income through faster billing and collecting. Click on the graphic below to download an Excel template should you wish to use Excel to tract AR days for your law firm.

For work in process days, the Excel sheet shown below illustrates how to compute and tract “Unbilled Days”. The average number of unbilled days for midrange sized firms based on the Juris Law Firm Economic Survey for the year 2005 was an astonishing 72 days. Every firm can benefit by making faster billing a priority.

Click the above model to download an Excel template should you wish to use Excel to tract WIP days for your law firm.

PS: The Juris Law Firm Economic Survey for 2006 is currently underway. You can participate on line at http://www.jurisinsight.com/2006survey/. Participates receive a free copy of the published survey results and analysis.

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 877/377-374,
e-mail info@juris.com or go to www.Juris.com.