Finance Tips: 25 Quick Tips for a Healthier Bottom Line
Drawn from their popular ABA LPM Section program on “Financial Success in the New Era,” here are pointers from Janis Alexander, Ed Poll and Mark Robertson to help ramp up the profits in your law practice.
No.1 DEVELOP A CASH-FLOW STATEMENT
A cash-flow statement is your firm’s single most important financial statement. It will project when you will need to borrow money, hustle for more business or increase collection efforts. It will also tell you when you will have sufficient reserves to make the capital investment you’ve wanted or to increase your own draw.
No.2 ENTER TIME ELECTRONICALLY—AND CONTEMPORANEOUSLY
Don’t let time and money slip through your fingers. The efficiency, extra speed and greater accuracy of an electronic timekeeping system makes it far better than the traditional handwritten timesheet. And be sure to enter time as you go from task to task! Trying to create entries for work done earlier in the day much less in the distant past is very time-consuming and won’t be accurate or complete. Lawyers who contemporaneously docket time capture a significantly greater portion of the work they have done—up to 20 percent or more. Also, spend a few minutes at the end of the day reviewing your dockets, and make any necessary corrections or additions while things are still fresh in your mind.
No.3 BILL ELECTRONICALLY
Send out billing statements to clients electronically to facilitate faster payment, while also reducing postage and stationery costs, time expended photocopying and the like. Send the statements by no later than the 25th of each month, so clients can enter your statements in their systems and pay you in the following month’s accounts payable check run.
No.4 REVISIT YOUR RATES
Review your hourly rates once a year and determine whether the rates should change. If you are going to change your rates, don’t make small changes. For example, increase them from $180 to $225, not from $180 to $185. If current clients object to rate increases, tell them you will charge at the old rates if they pay up front. This ensures you get paid and also keeps clients happy because they are getting work for a lower rate.
No.5 KEEP DEBT DOWN
Make limited use of borrowing and carefully preserve your lines of credit. Borrow for long-term projects, for capital growth and for increasing the size of the firm. Do not borrow for payroll or short-term project funds that should be taken from current cash flow. And never borrow for partners’ compensation.
No.6 TRY TAKING CREDIT CARDS
Consider accepting bill payments and retainers by credit card. Make it easy to do business with you. People can pay for just about everything else by credit card—why not your legal services? (Check first to see what all your jurisdiction’s rules allow.)
No.7 BE A GOOD TIME MANAGER
Manage your time effectively so you can dedicate more hours to billable work. Schedule a meeting with your assistant at or near the start of each day, so you both get up to speed on the tasks at hand and avoid wasting time interrupting each other all day. Identify your most productive time of day and try to block it off in your calendar, so you can protect it from meetings and the like in favor of getting bigger tasks done. Also, at the end of each day, plan for the following day before you go home. This lets you review what you did and didn’t get done and helps identify the critical tasks for tomorrow.
No.8 RETAIN CONTROL OVER YOUR PAYABLES
If you’re running your own business, you should also be signing all the checks. Ask staff to show you all vendors’ bills and statements, and decide what bills are to be paid when. Then review and personally sign the checks prepared by staff to keep control of the money in your hands. This helps reduce the opportunity for embezzlement as well as control your cash flow.
No.9 SEND PAST-DUE REMINDERS
Send out collection e-mails to all past-due accounts by at least the 15 th of each month (or at least one week prior to billing statements being sent for that month). In the e-mails, ask clients if they received the last statement and had any questions about its contents. Remind them that late charges will accrue on their next bill if the current one isn’t paid before the next statements are run and, if your firm takes credit cards for ease of payment, remind them of that, too.
No.10 EVEN OUT CASH-FLOW INTAKE
Consider different billing cycles for different portions of your practice, so you’re billing something every week. Waiting until the end of the month to bill means you will be scrambling to get all statements out while completing other necessary legal work. It also means your collections will be lumpy. Billing something every week will help you keep up with billings and make your cash-flow intake more regular.
No.11 DON’T WORK FOR CLIENTS WHO WON’T PAY
Not working and not getting paid is better than working and still not getting paid. Don’t take on new clients without a retainer, especially for litigation, and remember to stop work if the client will not pay you. Allocate the time and resources you would have spent on the non-paying file to work on other matters, or dedicate that time to marketing or other efforts to improve your firm.
No.12 BUILD A RELATIONSHIP WITH YOUR BANK
Make bank deposits personally until you get to know the bank’s personnel. Knowing them will go a long way in “greasing the skids” to get favors and referrals. Having a friendly relationship with your banker can also be extremely helpful when it comes time to deal with loans or lines of credit.
No.13 MINE YOUR EMPLOYEES’ BRAINS
At each firm meeting have a “quick tips” presentation, where each person has one minute to give a tip to somehow improve the firm (e.g., a suggested change to improve efficiency, a software feature people should use, a no-cost marketing idea). This allows the staff to get involved with each other, and it motivates everyone to think about new and better ways of doing things. Pick the best tip and give the employee a small prize such as a gift card. Recognizing small improvements can make for big changes in the long run.
No.14 MAKE YOUR BILLS CLIENT-FRIENDLY
Your bill is the most important piece of paper you send to a client. Make sure it is easy to understand and indicates how the fee was calculated. Do a reporting letter explaining what you have done to help clients better understand the value of your work for them.
No.15 APPOINT A “TECH GURU”
If you have a small firm, pick the most tech-savvy person in your office to help troubleshoot tech issues and teach others how to make better use of technology. This can save you money—you won’t be calling third-party technicians or vendors for small stuff, and staff skills will increase to boost productivity.
No.16 AGE YOUR A/R ONCE A WEEK
Aging accounts receivable weekly keeps you on top of how much each client owes you. With weekly updates, you can thank the client who has paid and gently nudge the client who hasn’t. You will also be able to better gauge when to stop work on a file. Don’t keep working until huge sums are owed and the client will find it even more difficult to pay. If you don’t get either the money or the right answers from the client, prepare to withdraw in accordance with your jurisdiction’s rules.
No.17 CREATE A BUSINESS PLAN
A business plan is your road map to the future. It is a concise and organized summary of how you intend to remain in business. It is composed of four main areas: a general description of your business, plus your financial, management and marketing plans.
No.18 INVESTIGATE ALTERNATIVE BILLING
“Data mine” your files and bills to identify matters that are candidates for alternative billing methods. Identify repetitive tasks and develop a system for tracking the actual time and costs so you can develop fixed fees for them. Investigate other billing alternatives by weighing the risks and rewards from the eyes of both the client and your firm. For example, your fee amount could be based on end results—such as closing a deal with favorable terms.
No.19 BE KIND TO THE PLANET
Work on greening your firm to reduce costs, and help protect the environment at the same time. Many Web sites will show you ways your firm can do better in reducing resource-consumption use, and many cities now have programs such as free on-site assessments of power usage, recycling and the like to help you create a plan.
No.20 CHARGE FOR PARALEGALS AND LEGAL ASSISTANTS
Legal assistants and paralegals are important assets in your firm and they help you produce legal work product. You are entitled to bill for their time and value contributed. Be sure to include them and their rates in your engagement agreements.
No.21 MIND YOUR BENCH STRENGTH
Consider the long-term impact of terminating employees in tough times. What “holes” are you creating in your legal team now that will hurt later when the workload picks up again? If you need to reduce payroll overhead for a while, look for options that will keep people as members of your firm—part-time schedules, sabbaticals, reduced-salary arrangements and the like.
No.22 CONSIDER AN AUTOMATIC BANK SWEEP
Explore establishing minimum amounts to be held in your checking account and setting up an automatic sweep with your bank. Then at the end of each day, idle funds in your checking account can get automatically transferred to an interest-earning money market account.
No.23 PUT YOUR SOFTWARE TO USE
Work on using the features in the programs you already have. Most people in your office are using only a small fraction of the features in their software. Spend a bit of money on formal training (community colleges often have reasonably priced courses), and have your more-techie people informally help others improve their skills.
No.24 COMPARISON SHOP
Track and calendar when your office, vendor and equipment leases will expire. Begin evaluating early and comparison shop to find a better deal, so you can reduce some overhead expenses.
No.25 SCHEDULE “ME” TIMEVacations are decompression time and are just as important to your financial success as the hours you work. At the start of each year put your vacation time in your calendar and don’t allow yourself or anyone else to book things in that timeframe. And when you are off on vacation, unplug totally —work and vacation don’t mix.
About the Contributors
Janis Alexander is Chief Operations Officer at Ambrose Law Group in Portland, OR, and a frequent speaker on law firm finance, technology and operations issues. Edward Poll is principal of LawBiz Management Company, a certified management consultant and coach to lawyers and law firms, and author of Growing Your Law Practice Through Tough Times (West). Mark A. Robertson is a partner in Robertson & Williams in Oklahoma City. He is a member of the ABA House of Delegates, a Past Chair of the ABA Law Practice Management Section, and coauthor with James A. Calloway of Winning Alternatives to the Billable Hour: Strategies That Work, 3rd Edition (ABA).
Based on the program materials for the ABA LPM Section program “60 Tips for Your Financial Success in the New Era.”