Law Firm Profitability

There are generally five (5) inter-related variables dealing with law firm profitability.  These are:

  1. Billing Rates (average settlement value in a PI firm);
  2. Volume, or production/utilization;
  3. Leverage, or the number of fee earners to partners;
  4. Margin, or the difference between revenue and expenses; and
  5. Realization, or the speed at which work is converted to cash.

    (file turnover in a PI firm)

In our experience, two things that are most lacking in small and medium sized law firms are financial plans and effective systems to make them happen.

Each of these five components must be in balance to meet the firm’s and the market realities. When a firm’s Work-In-Progress ( including paid disbursements), Accounts Receivable, use of line of credit, or partner capitalization are high, it becomes meaningful to review the practice management habits of the organization.

In our experience, two things that are most lacking in small and medium sized law firms are financial plans and effective systems to make them happen. The most common pretext for this deficiency is either a lack of time or skepticism about the benefits.

Comsense Consulting can direct the management of change with the following processes:

1

The preparation of detailed revenue targets for each lawyer and the firm, and a plan of action for change. Difficult to do in a personal injury firm, but there are ways and means of accomplishing this.

2

The introduction to you, and your staff, of an overall philosophy of profitability and cash flow management which addresses:

 

  1. Client retention;
  2. Disciplined docketing practices;
  3. Regular billing practices;
  4. An effective system of management of receivables; and
  5. A system to monitor and control available cash.

3

Using the firm’s existing time and billing system, produce relevant and useful monthly reports for the partners to monitor progress and take necessary corrective action.

These processes will significantly improve profitability and the flow of cash through your firm. A significant portion of Comsense Consulting fees for this engagement are based on improvements to the bottom line of your organization.

Comsense Consulting can help

With over twenty-five years experience in managing and consulting to law firms, we can offer you cost-effective, hands-on engagements that actually help make things happen.

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