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Running a law firm is no different than running any other kind of business. Although legal business is a service business, the operational aspects should be treated similarly to other types of businesses like retail, hospitality, or even online businesses.
Gathering and analyzing the data is something that law firms hardly do, but keep a tab of the financial metrics and understating the financial reports can increase effectiveness, improve inefficiencies and increase the profitability of the legal industry.
According to a recent study, a law firm of any size is way better positioned when the data is tracked and measured financially.
Attorney Performance (YTD) Revenue Report –
The Attorney Performance Budget report gives information about the Year-to-Date actual v/s target revenue. The addition of performance metrics such as utilization rate, collection rate, and realization rate will help the firm identify the areas of improvement. These performance indicators can be used to gauge how billable work contributes to the firm’s revenue.
Based on these data, a further drill-down of reports can be got by billed details, collection details, and billable details.
Aged Accounts Receivables Reports –
A piece of information on the receivables of each client account as-on-date divided into various aging buckets based on the due date.
The drill-through report consists of Accounts receivables per attorney details and the report could be used to forecast your cash flow accurately and for collection activities.
The Aged Accounts Receivable Report helps in determining and quantifying amounts outstanding on all Open and Past Due invoices on firm-level, per-client level, and per-practice level.
Rolling 12-Month Revenue and Expense Report
This trailing report shows what’s happened over the past 12-months. What revenue has been earned? What monies have gone out to keep the lights on? This report is used to feed cash flow reports, balance sheets, and income statements and make smart decisions about how to move your firm forward. Here, we need to capture Revenue data from Law Practice management software and expense data from accounting software.
Possible law firm expenses
- Bar association dues (state and local bars, if you wish)
- MCLE subscriptions
- Malpractice coverage
- Office space
- Utilities and internet access
- Laptop or desktop computer
- Backup cloud drive
- Printer and consumables (paper, ink, etc.)
- Scanner (either part of a printer or separate)
- Fax machine
- Landline or VOIP business phone
- Software and services:
- Cell phone service
- Microsoft Office
- Law practice management software, such as Clio Manage
- Accounting software
- Legal research software
- Business cards
- Advertising costs (PPC, Social Ads)
- Networking events
- Miscellaneous expenses
Sample Report Output.
WIP or the Pipeline Reports
The work-in-progress (WIP) Report or the Pipeline report essentially shows the amount of time an attorney has worked, the value of time, and expenses that have been executed, but not invoiced. WIP report goes beyond what you expect to bill. It’s an asset that can be used to establish loans or insurance. It’s an important part of any law practice, no matter the size.
With the help of a WIIP report, a legal practitioner can look at each client’s receivable balances, recent payments, and funds held in trust all in one page. This allows you to access real-time, cloud-based data about where your money is going, where it’s located, and who owes you that.
The WIP report is a way to add value to your services for the law firm. When the attorneys understand the current profitability and cash flow, they can make more informed decisions directed toward the operation of law practice. They can know what to expect financially and how much is billed and by whom. Above all, these reports could be synced with QuickBooks online.
Monthly Revenue Report
Understanding cash flow is vital for any business including the legal business and revenue reports play an important role in understanding the firm’s finances. A monthly revenue emanates an amount of money that’ll move into your law firm. It also includes billed time amount, billed time originator, and collection time amount details for a term of usually 12 months or even less, further drilled down to weekly reports depending upon the requirement of the attorney. And hence, a monthly revenue report can as well be modified into a weekly revenue report with the number of days of the week an attorney is actually at work.
The monthly revenue report normally helps the legal owners to understand how much cash they’ll need in the future for their business to grow and meet the expectations. It also helps determine if the law firm is over or underperforming and acts accordingly.
Few things that need to be included in the monthly revenue reports could be likely cases that could get closed (based on the case history from the past few months), projected payment timings by the clients, and projected costs that might be involved to solve a matter.
By understanding income and budgeting accordingly, lawyers could ensure incomes are received on time so they do not lose any client or case. Also, by calculating how much money will be needed to operate at the start of the month, revenue reports can act as an early warning for future issues/cash crunches.
As discussed in detail above, Financial statements and reports are written records that a legal business activity or law firm needs to have to evaluate the operations and performance and to see if it is carried out according to the desired expectations and for growth of the law firm.
Financial statements and reports are a great way to convey if a business is going in the right direction and lets the owner know the financial performance of the company. The financial statements and reports are often audited by government agencies, accountants, and accounting agencies to ensure accuracy of tax calculation, financing, and investing, or diversification purposes.
Apart from the reports discussed above, these also include the balance sheet, income statement, and cash flow statement.
The main purpose of these financial reports is to convey details of profitability and financial results of business activities. However, it can be very effective in showing whether expenses or revenue is increasing when compared over multiple periods.
LawKPIs is a reporting and analytics solution focused on Law firm profitability. We help firms to improve profits, pricing, customer acquisition, and reduce churn. Learn more at https://bit.ly/3aS8rce