The Biden Administration brings much hope to the communities we serve. Even though we are still practicing in an isolated world and COVID-19 concerns remain at the forefront, we are also feeling renewed energy not only for our clients but for our practices. A new year, a new Administration, and a new hope – time to review our firm’s financial performance and plan for 2021!
We all went to law school for many different reasons: to practice law, represent a vulnerable population, ensure constitutional rights are protected, and more. When we opened our practice or took on the responsibility of managing a practice group or firm, we may not have been fully prepared for the operational and financial work involved. As Chair of AILA’s 2021 Midwinter Law Practice Management Track, I wanted to make sure the LPM Committee came up with a practical and useful program – we didn’t want it to read like a book. We have six sessions covering staffing, technology, remote work, fee setting, communication, and finances. One general topic covers profitability, how to drive it and how to measure it.
Some of the comments and questions we have heard from attorneys on this topic and that will be addressed at the conference include how to budget for the unknown and how to be more efficient to cut costs given revenue may be constrained. Firm financial reports are informative and enlightening.
I wanted to share my personal experience as a preview of the coming conference and offer some hopefully helpful insights. For over 20 years, I have maintained certain routine financial practices that help me keep my thumb on the firm’s financial pulse. Some examples, not exhaustive:
For example, I review daily case initiations firm-wide, by practice area, by attorney, and by location. What kinds of cases are we signing up? Likewise, I review the sources of daily revenue – where is the inflow of payments coming from? What practice areas? What types of cases or type of work? What payment method? Are we charging appropriately for all work performed?
On a weekly basis, I review the conversion rates of prospective clients to retaining clients by attorney. Are the consultations the best use of this attorney’s time? Is their time spent on consulting worthwhile, or is it better to focus their efforts on substantive work? I’ll also review the cash inflow and outflow – are we on track to cover the budgeted expenses and growth we want to achieve?
Monthly and Quarterly:
I review the income statement. Are we on track with our budget and goals? Do we need to make any corrections? The income statement (aka profit and loss statement) isn’t just about the profit you keep; it is also a helpful tool to understand how you are using the money you don’t keep! The money you use should be helping you leverage your resources and increase your revenue.
On a periodic basis, I’ll review, for example, productivity and use of systems. What benefits does our case management system bring? How much revenue is it helping us realize? Also, a review of our IOLTA (trust accounts) is helpful.
We have endured an extraordinary and isolated 2020, with negatively impacted finances and an uncertain future. A Biden Administration brings real hope. Knowing and understanding your financials and what they tell you about the health of your firm ensures you are better prepared and will be able to continue the good work you are doing for your clients.