Friday, February 22, 2013

Financial Data with Destiny

Parsley Sage Rosemary & Ginsburg LLP
“Always a reasonable result for a reasonable fee, always”
MEMORANDUM

To:
Managing Partners and Administrators
From:
Mike Marget
Date:
February 22, 2013
Re:
Financial Data with Destiny

        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. 

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