How many times have you made it to the first quarter of the year, only to realize your financials aren’t ready for your taxes? Countless times, right?!?! Don’t beat yourself up; this is common amongst many law firms. Attorneys get so caught up in working on their client cases that the financials tend to take a back seat until tax time comes around. But what if I told you that law firm books aren’t just for taxes?
When this topic comes up with my law firm clients, I get a lot of comments like “I know how much money I have in my bank account” or “I’m not big enough to worry about this.” And both of those comments are the exact reason why growth becomes difficult for small law firms.
What You’re Missing Out On
Numbers! Yes, it’s as simple as that! The number one rule in business ownership – know your numbers. Without this knowledge, you’re running your business blind. You have no clue what your metrics are without real-time data.
What Most Successful Law Firms Know
Well the obvious answer here would be “their numbers.” But I won’t be an ass ????
Here are some of the most important law firm metrics:
- Revenue, direct labor, and gross profit for the entire firm and by practice area
- Conversion rate for the entire firm and by practice
- Revenue by attorney
- Net profit
- Client acquisition cost (cost to retain a client)
- Accounts receivable – total and by practice area
- Overhead margins (portion of revenue used for overhead expenses)
There are many more metrics we use with our clients, depending on their needs. But these are a few basic ones we find to be most important to help law firms make educated decisions for growth.
Aside from metrics, having a budget and cash flow forecast are two absolutely critical pieces. You can have millions of dollars in revenue, but if you have a slew of advanced client costs, you’ll find yourself in world of hurting and possibly negative cash flow. This is especially true for injury firms. And then you want to spend money on marketing, but you overspent and are wondering how you got yourself into the position you’re in. These two financial pieces will help you avoid this stress and frustration.
How To Get The Information You Need
My quick response would be, “stay on top of your books!” But, again, I would be an ass to say that ????
Aside from having everything regularly updated, you need to know what reports to pull in your law firm books. Then you need to know what those numbers mean.
We prepare dashboards for our clients that give both a visual view into their metrics as well as the raw data that feeds into them. In addition, we send a written analysis of the data. So no matter how their brains process information, they can easily see how their firm is doing and can make the best possible decisions.