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Profitability

Mind Your Own Business! (Capturing Time and Billing It, That Is)

By David Bilinsky and Laura Calloway

What financial information should a firm share with associates?

Understandably, law firms don't want to make a new hire intimately acquainted with the firm's cost structure or profit and loss statement. There are, however, various pieces of financial information that a firm can, and should, gradually share with its associates to the benefit of all.

When I was a little girl growing up in a small Southern town, (you can guess which one of us is telling this story), the best thing about life was the alley that ran behind my house. My best friend Kathy's house was at the other end of the block, and almost every day we would meet halfway down the alley and have all sorts of adventures. Our favorite, though, was looking through the knotholes in the solid-board fence that bordered one side of the alley to watch Mr. Mann work in his garden.

We'd flatten our bodies against the fence, just in case a car came down the narrow track, and then peer through the knotholes in the wood—holes that nature seemed to have positioned at just the right height for us—as Mr. Mann toiled with rake and hoe. Eventually, something he'd do would strike us as funny and, forgetting that he might not be able to see us but he could certainly hear us, we'd begin to giggle—louder and louder.

Suddenly, without warning, Mr. Mann would charge at the fence swinging his rake around his head like a crazed high school majorette with a fire baton and shout, "Mind your own business!" And, with hearts pounding, we would scamper away like scalded dogs, seeking the shady safety of Kathy's big front porch swing.

Lots of associates feel, sometimes with good reason, that they will get this same type of treatment if they try to find out what's going on behind the "solid-board fence" that protects information about their law firm's finances. This is unfortunate because both associates and the firms for which they work can greatly benefit from having associates participate in the firm's financial affairs early on. There are a couple of particular areas of information that will guide new associates toward better performance, help them learn the financial ropes of operating a firm, and boost the firm's bottom line at the same time. The best place to start is with associates' billable-hours goals.

The Billable-Hours Target

Although most, if not all, large firms have stated billable-hours goals for both partners and associates, many small firms do not. For the supervising lawyers reading this column, if your firm doesn't have a billable-hours goal for new associates, you should establish one. And if you're an associate at a firm that hasn't given you a target to meet, either ask for one or set one for yourself.

In firms with fewer than 20 lawyers, 1,600 to 1,700 hours per year is about right for associates. In firms with more than 40 lawyers, 1,800 to 1,900 hours is in line with what you can expect.

Why establish a billable-hours goal? Well, how will you ever meet your goal if you don't know what it is? And having a stated goal can help at evaluation time. We know that when it comes to compensating partners, one of the most important factors is personal fees collected. As an associate, you can demonstrate that you're on track to be a partner by meeting (or exceeding) your billable-time expectation—one of the major components in ensuring that you're considered for promotion.

Of course, associates will need more than a small amount of guidance to be able to hit their billable-hours target. Let's look at that area next.

Time-Tracking Techniques

Of special importance is understanding how to properly keep and record time, since this is a developed skill (not a natural talent). Here are the key points.

· Begin a notation as soon as you start the work. Most lawyers are interrupted too many times to count each day, and you'd be amazed at how much time is lost because an entry wasn't made as soon as the activity was begun.

· Enter the time as soon as the activity is finished. Again, interruptions are the norm and you're much less likely to create an accurate time entry after the fact. Usually, you will cheat yourself, not the client.

· Be sure to record all your time. If you work 231 days per year and your billable rate is $150 per hour and you miss out on recording just one hour per day, in total, you will not be credited for 231 x $150 = $34,650 in billings.

· Enter what you did and why you did it. This helps to create a time entry that justifies the expense by showing the client how he or she benefited from the activity and related expenditure. Keeping detailed descriptions of what you did and how it benefited the client is a good habit to foster.

· Keep up with everything you do, even if you can't bill it. If you keep up with all your time, not just billable time, you'll have a much better idea of where your time goes every day, how you waste it, and what you can do to make more effective use of it. The point is increasing the billable hours and decreasing the nonbillable ones or, at least, making sure that your nonbillable time at work is spent on things, such as learning financial skills, that will move you forward in your career.

In addition, even brand-new associates needn't be shy when it comes to seeking out ways to improve the accuracy of timekeeping. For example, your firm may still be using a particular type of timesheet that was developed to complement a software program that has been replaced twice since the form was created. As an associate, if you have a good idea for modifying the form that will help you and others more effectively keep time, find a quiet moment to mention it to your supervising lawyer.

Even better, if staff enter lawyers' time into the firm's system, seek out the ability to enter your time yourself. This saves money because you're more likely to do it immediately if you can do it on the same computer where you perform your work. Also, because the time goes in at your end immediately, the firm doesn't have to pay someone else to decipher handwritten sheets, plus work-in-progress records stay much more up-to-date, facilitating the firm's ability to bill more quickly.

Likewise, use of timers on the computer desktop, PDAs for capturing time expended outside of the office, and other "bells and whistles" of this sort will help both new and veteran lawyers remember to record time that might otherwise get away. Firm leaders should constantly be seeking feedback to learn what things can help the firm's lawyers capture more of their most valuable resource—time.

The Client's Bill

Another piece of financial information that firms can and should share with their associates is the billing statement, including what happens as a result of it. Associates contribute daily to the information that ends up on the client's bill, but they often don't see the final bill or know whether it eventually gets paid. We encourage associates to regularly obtain copies of the bills that are sent to the clients they represent, and also to monitor the accounts receivable for those clients. This is a good idea for a couple of reasons.

First, it's beneficial for associates to review the bill because it gives them an idea of the overall scope of the services provided to the client, and how the work they do fits within that scope. Second, if the time they are putting in is being substantially written down, or written off, this is a clue that they may not be understanding or properly executing the assignments they are given and they need to speak with their supervising lawyers to find out how to improve the situation. (Note that it may be due to the fact that the firm's compensation system only rewards the partners for their time and not the associate's—in which case associates will find their time regularly being written off by certain partners. Associates then need to ensure they're not penalized for this.)

Lastly, when bills that are sent for an associate's work end up languishing in the over-90-day category, the associate has an opportunity to learn something about both client selection and, possibly, how to better draft bills to convey value.

As you can see, there are many reasons to start finding out about firm finances early on. So if you're an associate, don't be afraid to walk up to that fence and knock on the back gate. You never know what's happening on the other side until you ask.

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