Parsley
Sage Rosemary & Ginsburg LLP
“Always
a reasonable result for a reasonable fee, always”
MEMORANDUM
To:
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Managing Partners and
Administrators
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From:
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Mike Marget
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Date:
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February 22, 2013
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Re:
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Financial Data with Destiny
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Managing a law practice has never been
tougher. Everybody is looking for that
silver bullet to restore profitability despite waning demand for legal
services. Whatever measures your firm
adopts to improve the bottom line, continuous access to actionable financial
data has never been more important.
Since the onset of the Great Recession,
large law firms have been relying upon their internal accounting systems as a
strategic resource to make better daily business decisions. Real-time access to firm financial data has
become de rigueur, enabling both
leadership and individual lawyers to identify trends at a macro level, and then
drill down through the data to understand cause and effect by client, matter,
fee-earner, practice group, area of law and other relevant metrics.
The sophisticated accounting software
utilized by the largest firms is designed with a single purpose in mind – to
make every lawyer a smarter financial manager.
Data is easily accessible online and provides a clear and accurate view into
every important financial driver of profit and cash flow. Depending upon the “access rights” granted
specific individuals:
1. Billing attorneys
query the status of individual clients and matters – e.g., last invoice date
and amount; total AR currently outstanding; date of last payment; and balance
held as unapplied retainer or in trust accounts.
2. Timekeepers may
consult a calendar representation of hours reported with the ability to edit
and spell-check the narrative language.
3. Billing attorneys
review aged accounts receivable and unbilled work-in-process reports on demand.
4. Firm leaders
analyze a myriad of information regarding clients, individual lawyers, practice
groups and the firm as a whole.
5. Key performance
indicators – billable hours; billable hour value; fee billing; fee collections;
effective hourly rates by timekeeper and group classification; utilization and
realization; new clients and new maters opened – as compared to budget or targets
– may be “sliced-and-diced” in various was to both to analyze current
performance and project future results.
Financially-savvy firms use their
accounting systems to recognize problems and monitor progress toward
improvement. For example, assume a
“commodity” practice area where billing realization is below firm average or
budgeted amount. The low realization
might be the result of staffing errors – too many hours worked by timekeepers
with higher billing rates necessitating fee reductions in the billing
process. A possible solution might be to
reallocate workloads so timekeepers with lower rates work on these commodity
matters, while higher-rate individuals are assigned to other client work where
they can realize their full rates. Every
law firm requires an accounting system capable of providing this type of
insight into their financial operations.
Unfortunately, not all law firm accounting
software is created equal. Many smaller
firms are constrained by systems incapable of transcending rudimentary
time-and-billing transaction processing.
Fortunately, there are options for small
and midsize firms to obtain sophisticated law firm accounting systems which
need not involve an expensive capital outlay for the software and associated
hardware purchases and maintenance costs.
One possibility is Software-as-a-Service (SaaS) where the software
resides in a hosted, Cloud-based environment and “rented” by the law firm
rather than purchasing it outright.
Another route involves outsourcing some, or all, of the firm’s
bookkeeping and billing procedures to a competent third-party provider who will
supply the sophisticated software as part of an overall services package.
Whether it is acquired by
purchase/installation in-house, via SaaS, or through outsourcing, sophisticated
accounting software can be transformative for the firm by providing greater
awareness of the financial drivers of profitability and enabling better
financial decision making.
