Archive for Management

How Matter Planning Actually Works – Part 1

By on February 19, 2012

Firms are increasingly being put under pressure to deliver alternate engagement models, such as fixed fee arrangements or discounted rates, to win new business. In addition to this clients are demanding more transparency in the on-going handling of their matters so they can see for themselves the progress being made and the justification for work undertake.

Before we start to describe the Matter Planning process let examine some benefits firms should experience by using Matter Planning software.

  1. Improve forecasting accurately by leverage historic data on like matters or tasks.
  2. Reduce the risk of taking on matters that will result in lower margins than expected.
  3. Introduce a repeatable process that provides control and discipline in the business development process.
  4.  Reduce the costs and time to respond to prepare an RFP or Alternative Fee Arrangement (AFA).
  5. Drive more new business at a known level of profit.

 Firms can attempt to do matter planning with crude tools such as a spreadsheet or Microsoft Project. This sort of planning can handle the scheduling component of any plan but completely misses the financial analysis requirements. A spreadsheet could be used along with normal time and billing software that offers matter level budgets, however this becomes the start-from-scratch method and it may take years to develop a profitability model that can be manually maneuvered to do a forecast.

 Matter Planning software provides the ability to go back in time and search for similar matters that can then link to provide an immediate historic prospective for a future matter. Convenient links include such items as:

  • Phase and Tasks
  • Specific attorneys and attorney levels
  • Matter rates and actual internal costs
  • Hours recorder and actually billed
  • Disbursements

 After using the Matter Planning software tools the firm can easily develop a “roadmap” of revenue, hours, rates, costs and expected profit for a potential new matter. The firm can now present the client with a comprehensive financial matter plan.

 This however is just the beginning, in How Matter Planning Actually Works – Part 2, we’ll look at how to manage the matters and track budgeted vs. actual performance statistics to then better forecast future matters.

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Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management, Productivity

Survey – Wide Disparity in Billing Efficiency Causes Cash Flow Issues

By on January 22, 2012

In my last post I revealed the details on a study I conducted to see how successfully firms were able to get attorneys to get their time in from the prior month. The results were not bad, 74% reported they had attorney time posted no later than the 2nd business day of the month.

Now we’ll really separate the firms with a new survey that reveals how quickly firms can get edited pre-bills back from attorneys and bills out to clients.

Question #1:

From the time you give attorneys pre-bills hope long before they are due back in business days?

  •  33%    1 – 3 Business days
  • 33%    4 – 7 Business days
  • 20%    8 – 14 Business days
  • 14%    15 Business days or longer

Note: One firm reported that the “billing assistants” bill all month long and there is no requirements; the busiest billing day is the last day of the month.

Question #2:

When in an average month when are you done billing and the bills are sent, emailed or e-billed in business days?

  •  13%   1 – 4 Business days
  • 40%   5 – 10 Business days
  • 13%   11 – 15 Business days
  • 34%   16 Business days or longer

Note: Many firms reported that their billing routinely stretches into the next month and they are sending bills at the same time they are doing pre-bills for the next month.

Here are some quotes:

Worst: “We are very rarely completely done with the bills prior to sending the pre-bills out for the following month.”

Best: “We give the Attorneys 24hrs to respond back with changes or corrections. The morning following the 24hr review period the invoices are created, stuffed and mailed out within 4-5 hrs.

Conclusions

There is a wide disparity between law firms regarding how efficiently they manage the billing process. My review showed it had little to do with size of firm, number of branch offices or type of law they practiced. For example, the “Best” firm above has over 200 timekeepers and many offices. They however are highly disciplined, automated and structured. The law firms cash flow is directly related to getting bills in the hands of clients in the shortest period of time. There are ways to improve the billing process. You might want to review my 10 part series on improving the billing process starting here.

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Categories: Best Practices, Financial Management, Law firm billing, Management

Survey – Getting Time Posted to Improve Law Firm Cash Flow

By on January 15, 2012

Law firms are like a cash registers, there is no revenue until you put the
actual cash in the drawer. The challenge is finding best practices that promote
maximize cash flow. This is short survey from responses to a law firm group
list serve determining how quickly law firms can close a month. The month-end
closing process is a key step for most firms in the cash flow process.

Here are the key steps to cash flow:

  1. Get all time and cost posted
  2. Balance the system
  3. Close the month
  4. Print and distribute the pre-bills
  5. Enter the pre-bill edits
  6. Print and send final bills
  7. Collect the cash

So how fast can law firms close the month by getting in attorney time
for the month, as measured in business days from the end of the prior month?

2nd Business Day ——– 44%

1st Business Day ——– 30%

3rd or longer Business Day ————- 26%

I think this as pretty good. Most firms responded that within 1
business day of “closing time entry” they have balanced their system, closed
the month and are starting the pre-bill process. The above survey does not measure
the time and costs that are not entered before the close-off.

In a future post we’ll take a look at how long it takes to get edited pre-bills
back from the attorneys and bills out the door. Leave a comment here for how
your firms closes off Time Entry at month-end.

 

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Categories: Best Practices, Financial Management, Law firm billing, Management, Productivity

Stop the Attorney Time Entry Conundrum

By on January 8, 2012

There are multiple problems with getting attorneys to track and enter time on a daily basis. Let’s try and clearly identify the problem and see if we have some solutions.
 

  1. It’s not natural. We can demand and threaten all we want, but quite frankly, detailed time entry is not natural for a professional. How would all of us non-attorneys like to track every tiny task we do all day long, and enter it into a computer down to the tenth of an hour (.10)? You have to be kidding right? Let’s see a show of hands, just as I thought, no hands are in the air.
  2. It’s a form of micro-management. I want to practice law, solve problems, compete like an athlete, and detailed time entry is the client’s form of micro-managing every little thing I do.
  3. It’s not convenient. Stop what you are doing, enter the time, start back up again and switch to work on another matter. This is a painful process, almost as painful as just working all day (week?) and then trying to parcel together all the (hundreds?) of time entries for the day. Let’s see, it’s 5PM and I need to recreate my time for today, did I talk to that client for 6 minutes, or was it closer to 12 minutes, I’ll enter .20 hours (12 minutes).
  4. Out of the office … too bad. I’m off-site doing depositions and meeting with my client, detailed time entry isn’t very easy. It’s a big case and I’ll be doing this for the next few days. I’ll just enter in 8 hours and call it “depositions and meeting with client”, nope can’t do that, the carrier won’t pay they want “micro-management detail”.

 We could of course go on and on about the “issues”, now let’s talk about how to improve the process and profitability.
 Improving Time Entry:

  1. Admit it’s a Pain. The first step to get attorneys on board with the time entry process is to admit that all of the “issues” above are true and painful. No attorney enjoys entering time. Make sure the attorneys know that you know this and are prepared to mitigate the pain as much as possible.
  2. The Real Reason for Time Entry, it’s the Job. When you want to charge clients $250 – $1,000/hour, with few restrictions or limits they want detail for every moment of your time. If you don’t like this level of scrutiny find a new job, many others have. Just accept this as a way of life, the life you’ve chosen.
  3. The Firm will Help. Firms are smart to individually help attorneys with time entry. Senior attorneys and partners may have secretaries to help them, we assume their billing rates are high enough to easily afford the labor costs. Time entry software isn’t always easy, take extra time to train attorneys, be patient, show them short-cuts after they learn the basic program. Provide attorneys the option of using a web time entry product or a mobile app to assist when not in the office.
  4. New “Found Time” Tools. Utilize the latest tools that track the attorney’s entire day on a task by task basis, then easily turns them into otherwise missing time.
  5. Send it off-Shore. That’s right, if time entry is just going to be a problem and expensive attorneys and staff struggle with it, take a look at off-shore time entry. Scan old-fashion paper sheets and let someone else do it.

 

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Categories: Best Practices, Financial Management, Law firm billing, Management, Practice Management, Productivity

5 Steps to Improve Your Firm in 2012

By on January 2, 2012

It’s time for your firm to make your 2012 News Year Resolutions; these might help you decide on some that will be sure to please the partners.

Improve Cash Flow. I’ve written several articles in the past regarding improvements in cash flow, mostly around the collections process, here is one. Improving cash flow starts with the engagement process. All new clients and even some new matters require a standard firm engagement letter that is executed BEFORE starting work for the client. Payment terms must be clearly identified along with retainer requirements. Is the “retainer” classified as an IOLTA payment in your state, there is actually a big difference, read here.

The use of automated Collections software with Wizards (workflow) will greatly improve collections, see Mary’s story here and here. The idea is simple, you’ve done the work, you should get paid. One unique possibility is to ask clients to pay by ACH Debit, we all do it for expenditures like our credit cards, monthly mortgage payments, utility bills etc. At the end of the month just send the client an email with a PDF bill attached and then after an agreed to period, like 20 days, sweep the money from their bank account. There are much fewer accounts receivable issues and cash flow improves immediately.

Provide Partners with Information not Data. Law firms are guilty of providing partners with stacks of month end reports with tons of “data”. What the partners want to know is; so what?, what does this mean?, what should we do about it?, how does it affect us?. The CFO at the firm should make sure the information the partners receive is understood by the partners from a business point of view. Partners are attorneys, they too many times want to see all the details, all the reports, and do their own research, that’s what attorneys do. A smart law firm will boil all this down into summary format and provide the analysis up-front. A good Business Intelligence system with a data warehouse will help automate this process.

Provide Accrual Based Analysis not Just Cash Reports. Most firms in this country choose to operate on a cash basis, however cash basis reporting. See my story on cash vs. accrual accounting here. Beginning in 2012 start educating your partners on accrual basis reporting, show them a more clear picture of how the law firm is structured from a profitability point of view. There is more to law firm profitability than the current cash balance in your check book.

Reduce Risks. Rick management becomes a much more important topic as a firm grows geographically and diversifies into more areas of law. Why, because there is more room for errors that can be very embarrassing and costly. Conflict checking for business issues and adherence to federal laws may actually out-weigh some of the normal legal representation issues. For example, here is a story dealing with a potential new client embarrassment. Make you’re your firm isn’t caught up in a SDN violation, it could be very costly. Check this out.

Lower Internal Costs through Productivity Gains. This is so easy to say, yet a little more difficult to do. We’ll focus on improvements in just the quality of what you do, see this story on quality. There can be many more ways to improve productivity and lower costs, check this out.

I hope your firm enjoys a peaceful and happy new year.

 

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Categories: Best Practices, Financial Management, Law firm billing, Management, Productivity, The Legal Market

It’s a Great Idea – But Who Will Pay for It?

By on December 4, 2011

Legal Project Management is a great idea that, apparently, no one wants to pay for.  Law firms find it hard enough to get paid for things they actually “do”. These tend to be specific tasks, write a letter, file a brief, a deposition, a court appearance, etc. It is difficult to get paid for “review file” because the client believes that this type of task should be covered as part of general overhead and therefore included in the rates charged for actually “doing” something. Yet reviewing the status and planning the next course of action might very well be “project management” activities.

Sometimes it’s difficult to describe exactly what Project Management (PM) really is, what do you really “do”?

 Wikipedia even has a definition for Legal Project Management. It’s interesting that even Wikipedia points out the use of PM in the e-Discovery arena.

 We were fortunate to have Steven Levy at our RainMaker Annual Client Conference this year. He provided us some interesting perspectives on legal project management. You should check out his book on Amazon, it is quite interesting.

 One thing is certain; it is hard to understand Project Management. I can tell you for certain that without it you’ll have mismanaged projects and they are VERY COSTLY from a number of angles, including unhappy clients.

  Law firms already do Legal Project Management, sometimes by accident, but do it. The secret to success is to define the best you can to clients and find ways to get paid for it. Project Managers are crucial to the success of any defined project, both firms and clients must agree to a way to pay for the true cost.

 

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Categories: Best Practices, Financial Management, Management, Productivity, The Legal Market

Year-end Survival Guide for Law Firms

By on November 20, 2011

Law firms are quite unique, as compared to most other businesses; they normally choose to operate on a cash basis. Income isn’t earned, from a tax point of view, until that cash actually comes in the door.  In addition, expenses can’t be deducted until they are actually paid. Cash-in, cash-out that’s how law firms work. Even though smart firms might keep unbilled, accounts receivables and accounts payable on their balance sheet (accrual accounting) it really doesn’t factor into revenue or taxable income. One benefit of cash accounting is that income tax is deferred on accounts receivable, which may or may not be collectible. Law firms on a cash basis can do much more yearend maneuvering to manage the tax consequences of either the corporation or partnership.

 In a Slow Year – Ways to Increase Income

  • Of course, the best way to increase income is by billing more hours through November and collecting it all by December 31st. By this time of the year it’s a little late to expect work to be billed and collected.
  • Stop paying expenses probably has single biggest impact on income. Contact your vendors first so that they understand that November and December bills will be paid by mid-January.
  • Contact clients with large receivables, especially those that are old and risky and negotiate discounts for payment in December. Surprisingly, some companies have “use it or lose it” budgets and they just may want to get this liability off their books. Keep in mind that they operate on an accrual basis; it’s good to reduce liabilities for them.
  • Contact clients with large projects and see if you can get more upfront retainers, (not IOLTA payments). This additional cash will probably be calculated into taxable income.

 In a Good Year – Ways to Keep Taxes Down

  • Just the reverse of a slow year, one excellent way to keep taxes down is to pay forward 2012 expenses in December 2011. This doesn’t mean going on a buying spree. Many vendors would gladly bill2012 services and accept payment in early January. (Checks dated December 31st this year will reach them in early January).
  • One hidden expense that is sizeable in some firms is credit cards, go online and pay off all balances.
  • Make purchases in 2011 instead of 2012 for hardware and software that can be put into service pretty quickly. Only buy the items you were going to purchase in the upcoming year.
  • Contact some large clients and tell them you’ll delay November and December billings and instead bill them in early January for immediate payment. This might benefit the client since they are accrual basis, and if they receive a bill in 2011, it impacts their financials.  

 Beware of Pitfalls

  • Beware of the false sense of security that cash accounting provides. Many of the above suggestions have short term benefits with a potential longer term negative impact.
  • Drawing down the line of credit in a slow year-end, for any reason, is risky.

 Best Practice

Manage the firm day to day on an accrual basis. Accrual reporting provides cleaner snapshot of the health of the firm. Sure, you’ll compensate partners and pay taxes on a cash basis, but accrual will allow you to sleep at night knowing what tomorrow will look like.

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Categories: Best Practices, Financial Management, Law firm billing, Management

Win-Win AFA’s at Work – Stage Engagements

By on November 12, 2011

We are hearing from more and more firms, especially those doing insurance defense work, about how they have implemented an Alternative Fee Arrangement that seems to be a good compromise. We’ll call it Stage Engagements and it’s quite simple. A firm will take on a volume of matters from a carrier in trade for a fixed fee for various early stages of each case. Each stage has a start and end point, the end point is a “triggering event”. There can be multiple stages prior to outright litigation.

Here are some examples of triggering events:

  1. End of the “Presuit Period”.  This is a specific date, sometimes extended upon agreement of the lawyers.  But typically it is 90 days from the notice of intent.
  2. X dollars for all work up performed up to the first three depositions including plaintiff’s deposition.
  3. X dollars for work performed during the phase of trial preparation.
  4. X dollars for work performed during the initial discovery up to and including the plaintiff’s deposition.

 The Client Wins. Clients are looking for fixed price, especially in early case work. The early stages tend to be very low cost to the client and with a fixed price, outside counsel has no incentive to delay, or expand the scope of work required. Clients maintain the option of handing-off the case to another litigation firm if it deems the case if too complex or risky for the early-stage firm.

 The Firm Wins. Even though the firm doesn’t make a lot of money on the fixed price stages, it does position itself to inherit the case if an early settlement can’t be reached and the case goes to trial. As we all know, litigation scales up the value proposition and the billable hour normally rules. Furthermore, with the volume of work being acquired, firms can push the work down to the lowest practical level of competency, build best practices and use technology to keep internal costs down.

 Here are some tips to firms looking to take on Stage Engagements:

  1. The first key is to clearly identify what tasks are required in each Stage. Keep in mind that fixed scope = fixed fee. Any material “out of scope” tasks or turn of events requires a re-negotiation with the client.
  2. Normally a Stage isn’t billed until it is complete. Firms need to figure in the impact on cash flow when taking on a large number of new files. Also keep in mind that clients are taking 45-90 days to pay even under flat fee arrangements.
  3. Most modern legal billing systems will easily allow a firm to track all time entries in WIP for any Stage, and then simply bill them at a fixed fee amount. The timekeepers working on the matter get their utilization (hours billed) calculated based upon the fixed fee and see some sort of adjustment. More advanced systems might send an attorney a SmartAlert email when 90% of the budgeted fixed fee has been worked. SmartAlerts might also be sent to billing when a triggering event takes place from the Docketing system, notifying them it’s time to bill.
  4. Firms can run internal reports comparing profitability (or the lack of) on not just the Stages, but also on the entire matter if it goes beyond Stages and becomes hourly billable. The idea here is to look at the big picture, not just small chunks.
  5. Improving internal processes and lowering costs will give firms the inside track on their competition securing additional work, use this as a key component of your business development process.

 Fixed fee work doesn’t sound very innovative; however this Stage Engagement approach can be a simple win-win for both sides while we all invent a better set of AFA’s.

 Let me know what   you have experienced in Stage Engagements.

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Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management, The Legal Market

The No Surprise Rule – A Key to Effective Management

By on November 5, 2011

I don’t know about you, but I only like surprises on my birthday and Christmas. Typically surprises at other times tend to be bad news. A rule I’ve always used with people that work for me or even with me is the “no surprise rule”. It’s quite simple, if there is bad news, the potential for bad news, an unhappy client, an accounting error, a software bug or the like, I want to first hear about it from the people closest to me. How embarrassing is it to get a call from a key client with a critical issue that you knew nothing about, but should have?

 In most cases, if you are getting surprised it’s because the organization around you hasn’t done their job. It could be your fault; maybe they are not encouraged to deliver bad news, or potential issues. Maybe a key manager tried to inform you of a potential risk, only to be crushed by your response. The manager won’t make that mistake again.

 The No Surprise Rule should encourage your team to effectively communicate, without the fear of having the messenger shot, or getting unduly chastised for making a mistake. Employees, or managers who don’t make mistakes are not learning very much and probably only doing low value tasks. As  Oscar Wilde once said; “Experience is simply the name we give our mistakes”.

Here is what you can do to implement the No Surprise Rule:

  1. Encourage your employees to tackle initiatives on their own, to “run with it” themselves. Let them know that you are supportive and available at any time to provide advice.
  2. Establish a routine communication forum, for example weekly meetings, where it becomes easy for an employee or manager to explain things that aren’t going well.
  3. When your people come to you with bad news indicate to them that you appreciate hearing about it sooner, than later and they did the right thing.
  4. Practice this same rule yourself, never surprise your employees. This is especially true for employee evaluations. Management has failed when an employee says, “why didn’t you tell me earlier”.
  5. Provide continual feedback, the biggest short-coming of a missed expectation is the lack of communication.

 Implementing the No Surprise Rule will improve effectiveness, client relationships, trust among teammates and by the way, those birthday and Christmas surprises will be that much more special.

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Categories: Best Practices, Management, Productivity, Uncategorized

What is Your “Rate of Change”?

By on October 30, 2011

 Jack Welsh, the former Chairman and CEO of General Electric once said:

 “When the rate of change inside the institution is less than the rate of change outside, the end is in sight.”

  It reminded me how hard it is for a law firm to make changes, especially in the areas of finance and practice management. The claim is that law firms have been trailing behind corporate America for many years in such areas as; innovative use of technology, development of business and marketing plans, and communications with clients, and now Alternative Fee Arrangements. Many times it is frustrating to see firms hang onto the status quo for no good reason. Why is this?

  One reason might be that firms don’t have a “Vice President of Change”.  Successful corporations all have these people, many times there is on-going competition among the up and comers as to who is the best or most compelling Vice President of Change. You can probably guess, of course, where I’m going with this …. there really isn’t anyone with this actual title. The Vice President of Change is the brave soul who is willing to risk rejection, humiliation and being labeled as “not understanding” by just trying to improve the way things have always been done.  

  Law firms don’t control the rate of change on the outside; they can however embrace a Vice President of Change internally. Encourage attorneys and staff to be creative and propose changes that will benefit the firm. Let them know that the Vice President of Change is a welcome position.

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Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Management, Practice Management
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