Now that most schools are in session, it is time to start thinking about your end-of-year tasks.
Since many attorneys and paralegals are compensated by an end-of-year bonus based on productivity, this is an excellent time to review productivity reports. Is the firm meeting its overall goals? Are there underperforming individuals? There are many reasons as to why a timekeeper may be underperforming when compared to budget. The client workloads may have lessened this year; the timekeeper may have had some personal issues that impacted their ability to perform at 100%, or they simply may not be focused on their client production. This may be a time for a kick in the pants or, better yet, some encouragement to finish the year strong.
You will also want to review the financial health of the firm. Some of the key metrics to review are:
Fees per partner/shareholder. The metric can be run using billed dollars or collected dollars. For billed dollars, the firm’s billings are divided by the number of partners/shareholders. The more billings each partner can manage, the higher the firm’s profit margin.
Fees per all timekeepers. Similar metric but including the associates and paralegals.
Staff to partner ratio. The number of professional staff is divided by the number of equity partners/shareholders.
Effective billing rates. Each timekeeper has a standard default billing rate. There may be other rates that are higher or lower depending on the industry and the client. The effective billing rate is the rate after discounts and write-offs/write-downs.
Accounts Receivable per partner/shareholder. The review of accounts receivable (and unbilled time) should be reviewed now. Collection efforts should be underway for dollars to be collected before end of year.
If a client’s debt has been on your books more than six (6) months, consider offering the client a discount if paid before the end of the year. The longer a receivable is on the books, the less likely you will collect it.
The key metrics can be compared to other firms by utilizing some of the surveys that are issued every year. Many can be expensive, but if you have not checked your firm against others in a while, it may be worth spending the money. Also, compare to prior years and see how the firm measures. The effective billing rate metric is extremely critical, especially if the firm bases its budget on default billing rates. For example, if a $500 per hour partner has an effective rate of $325 per hour, it will be an indicator of either efficiency issues or clients being offered discounted rates. Finally, the push to collect receivables will happen, so you might as well get as much runway as possible by starting now!
For more information on accounting & bookkeeping services, please contact Brenda Barnes at email@example.com.