Note: The following is an excerpt from a new eBook titled 15 Ideas for Getting a Jump-Start on 2015 which is freely available with registration.
Lawyers are expected to learn what they need to know about practicing law in law school. Looking at the course offerings from any law school you will find criminal law, torts, administrative law, business law, family law and so on.
What you will not find are courses on accounting or the financial administration of a law firm. This very important part of managing a law firm is left for on-the-job training, yet it is one of the most critical components of a successful law practice. Many law firms consider themselves profitable if they are able to pay all of their expenses and are able to put money in their own pockets during the year.
However, that is not the only measure of profitability.
A successful law firm or lawyer understands how he or she is actually making money. Just because there is a number in black at the bottom of an income statement it doesn’t mean you’re seeing the entire picture.
Profitability is measured not just on the income statement, but by analyzing matter and timekeeper profitability.
Profitability is measured not just on the income statement, but by analyzing matter and timekeeper profitability. Controlling overhead costs cannot be dismissed and should be reviewed yearly at a minimum. However, in order to control growth and increase bottom line profits, it is imperative to evaluate profit on a case-by-case basis or at a minimum by a particular type of law. How many hours were required to derive the fees generated?
Not all cases are winners and it is important to understand which ones are worth pursuing and which ones are draining profits.
The same is true of timekeepers. Obviously in the smaller firms where there are only principals doing the work, it is easier to follow the productivity of the timekeepers. As firms grow and additional timekeepers are hired, it is important to be sure that each timekeeper is generating enough revenue to substantiate his or her employment. Are certain timekeepers entering a large number of billable hours that have to be reduced at the time of billing?
The real success of a law firm or lawyer is the result of a strong understanding of the firm’s total financial picture.
The complete eBook, with 14 other expert viewpoints, is freely available for download with registration here.
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Deborah J. Schaefer is a Certified Public Accountant and Computer Consultant in Woodbridge, Connecticut. Find more from Ms. Schaefer on LinkedIn. She can be reached at email@example.com.
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