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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

Changing the Billing Paradigm – Parts 10 (Final): Cover Letters on Client Bills

By on July 24, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss idea of adding a cover letter to the front of a bill.

The idea of drafting a personalized cover letter and attaching it to the monthly bill is just outright misguided. What is the purpose of the cover letter? An attorney should be communicating with the client on a routine basis, the client should feel comfortable that they know what’s going on.

 The idea of sending a personalized cover letter with each bill does nothing more than slow up the billing process, cost the firm cash flow and may allow the attorney to think that he/she is actually communicating with the client. The fact is, that anything important the attorney needs to communicate to the client probably can’t be put in a general cover letter that passes through the accounts payable department in any case.

 The firm might be better off setting up a policy that says a billing attorney must call a client, on every final bill after a matter has closed or any bill over $xxxx dollars to explain it personally to the client.

 In summary, cover letters on bills really don’t serve the intended purpose and only delay the firm’s cash flow.

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

Changing the Billing Paradigm – Parts 9: Getting Bills to the Client.

By on July 17, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue getting the final bill to the client.

Here is how to improve cash flow and profitability by dealing with getting the bill to the client in the shortest possible time:

  1. The issue here is that the firm has done the work, incurred the hard costs and now wants to get paid. Unfortunately the firm can’t get paid until the client has had adequate time to process and pay the bill.
  2. Where possible, firms should try and get enough retainer in advance to cover the next month’s fees and costs. Therefore, there is never an accounts receivable.
  3. The second best option is to get the client to accept an emailed bill. Emailing a “pfd” copy of a bill is a major improvement in cash flow and profitability.
  4. Another option is to provide all client bills on a secured web site like greenlegalbills.com, send them an email with a link that will automatically take them to the site and allow them to download the bill themselves. Emailing bills is no longer a novelty, businesses are doing it everywhere. 

 In summary, the faster a client gets a bill  the better cash flow a firm will have,  and attempt to get all clients to accept email bills instead of paper copies.

 In the final post of this series will briefly discuss delays in the billing process due to personalized cover letters.

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

Changing the Billing Paradigm – Parts 6, 7 & 8: Dealing with the entire Pre-billing Process

By on July 10, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue of the entire pre-billing process.

 Here is how to improve cash flow and profitability by dealing with both the pre-bill process and the attorneys who review the pre-bills:

  1. The entire pre-bill review process is, quite frankly a poor process to start with. Why do you need to review a pre-bill, what are you looking for? Time entered against the wrong client/matter, time that can’t be billed, lousy narrative …. this is like taking every car off the production line and having to redo poor workmanship in the QA department.
  2. Should bills be reviewed, maybe the larger, more complex ones. If the billing attorney properly supervises work done on his/her matters, a complete pre-bill review should not be necessary.
  3. Pre-bill reviews should be done to match the continual billing throughout the month as covered in my earlier post.
  4. Print pre-bills on a slightly off color paper so that they are real easy to recognize on a crowded desk. .
  5. Set a pre-bill review deadline, for example 3 business days after delivery. Enforce this review time. Where possible allow secretaries to edit narrative for all pre-bill changes and accounting can do such things as adjustments and transfers. Maintain an ongoing list of all outstanding pre-bills by billing attorney, if they are late contact them or their secretaries and work out a timeframe for submission.

 In summary, getting pre-bills reviewed and ready for billing is the final critical step and sometimes the most costly one.

 In the next post we’ll look at finalizing bills and getting them to the clients, why is it a problem and what can you do to improve the process and become more profitable.

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

Changing the Billing Paradigm – Part 5: Dealing with Soft Costs.

By on July 4, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue of processing billable soft costs each month.

Here is how to improve cash flow and profitability by dealing with soft costs:

  1. Soft Cost items include such things as copies, faxes, phone calls and postage. Many clients no longer pay for soft costs, they assume that the billable rates charged by firms (should) include these office costs. When a partner is billing $500 – $1,000/hr. it’s almost embarrassing to ask for $0.20/copy.
  2. Charging for soft costs is highly unique to law firms, can you name another business that does this. Law firms would accept this from their vendors.
  3. So, what should a firm do to improve profitability? If your firm really deals in a lot of soft costs items negotiate a flat fee or % of fees as soft costs charges. For example, 2% of fees is deemed to cover all soft costs charges. You should first check with your state bar associations to see if this is acceptable.
  4. Getting rid of soft costs also saves money on all the “cost capture” equipment currently used in the firm and all the maintenance contracts, along with labor to download and process these costs.

 In summary, get rid of soft cost, negotiate rates with clients that will cover any revenue lost through these. Trust me, your clients will be happier when they don’t see an extra $100 attached to their bill for “office functions”.

 In the next post we’ll look at dealing with the entire pre-bill process, why is it a problem and what can you do to improve the process and become more profitable.

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

Changing the Billing Paradigm – Part 4: Dealing with attorneys who don’t have their time entered.

By on June 19, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue of chasing attorneys without their time entered.

 Here is how to improve cash flow and profitability by dealing with attorneys who habitually do not enter their time as required:

  1. The first step in dealing with late time is to have a firm wide, iron-clad policy identifying the “rules” for time entry. For example, time entry is required daily and absolutely no later than 9AM the following morning. If the firm is going to constantly bill clients through-out the month there can be no lag in time entry, there is no “monthly cut-off” date.
  2. Step two is to make sure that the senior partners themselves adhere to this rule, otherwise it’s just too hard to get everyone else on board. Even if the secretaries do the entries, at least they get done on time.
  3. At this point you can determine the problem with those that don’t adhere to the rules. They don’t adhere because they just don’t manage their time properly, or just feel that they are above the rules. I’ve heard all the excuses about how their work is too important, they are too busy, what their hourly rate is etc., everyone who is allowed to have an excuse has one.
  4. When an attorney doesn’t follows the rules have the partners deal with it, don’t push this off to the staff who will only be ignored.
  5. What about penalties, such as withholding paycheck or expense checks? First of all, withholding pay may itself be a legal issue, secondly, all this become just a game, how long can I last, who has more power? The fact is that certain occupations require prompt and accurate reporting, it comes with the job. A police officer needs to file a crime report, a surgeon needs to file a report after an operation, income taxes are due April 15th, court filings often have critical dates attached. The attorney just needs to have his/her time entered immediately upon completing the day.

 In summary, get buy-in from the top, stick to the rules and don’t accept excuses, everyone has one.

 In the next post we’ll look at dealing with soft costs, why is it a problem and what can you do to improve the process and become more profitable.

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

Changing the Billing Paradigm – Part 3: The Month End Dilemma

By on June 12, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the Month End process.

 Why do firms have a “month end” process, the same reasons most other businesses do, it’s a convenient segmented time period to measure financial performance. However, from a billing point of view it really doesn’t mean very much. Firms operate on a cash basis, billing as such does not have any significance unto itself. Yes, I understand, without billing you probably won’t have cash.

Here is how to improve cash flow and profitability regarding the Month End process:

  1. A firm may have clients that specify an exact billing cycle, fine, but the rest of the clients might be billed on a firm developed billing cycle. Bill continually through the month, make billing a process, not an event.
  2. If you have a really active matter, see if you can bill twice a month. The sooner you bill, the sooner you’ll get paid.
  3. Ask corporate clients when they would like to get bills, this might sound strange, but CEO’s want to know their expenses as early in a month as possible. Getting a large legal bill on the 25th of the month might be a killer, getting it on the 10th won’t be as bad.
  4. A firm might find that continually billing through the month is a way to reduce staff. It’s not unusual for a law firm to have billing staff “less than productive” when they are not billing. These same people are all stressed out during peak billing days. Smooth out the workflow.
  5. If a matter closes, bill it immediately. Get all the time and cost recorder and bill it, regardless of the billing cycle.

 In summary, don’t tie the accounting period month end process to billing, bill continually throughout the month.

 In the next post we’ll look at dealing with attorneys who don’t have their time in, why is it a problem and what can you do to improve the process and become more profitable.

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

Changing the Billing Paradigm – Part 2: Getting Attorneys to Enter Time

By on June 7, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the attorney time tracking process.

 There are multiple issues with getting attorneys to track and enter time on a daily basis.

  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 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. 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.

 The bottom line is that Time Entry, must be done daily, must be accurate, and is just part of the job. The firm will do everything it can to make it as painless as possible, but it is an ABSOLUTE REQUIREMENT.

In the next post we’ll look at the month end process, why is it a problem and what can you do to improve the process and become more profitable.

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

Changing the Billing Paradigm – Part 1: Identify and Acknowledge the Pain

By on June 4, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful, monthly schedule. Why … because it’s always been that way. We’ll examine the current painful and costly process and then make specific recommendations on how to improve it.

 Here is the painful process:

Painful Step #1: Get attorneys to enter their time, daily.

Painful Step #2: Attempt to close the month, and get all the late time entered.

Painful Step #3: Now go deal with all the attorneys who don’t enter their time.

Painful Step #4: Get all the soft costs entered, normally by downloading data from the cost capture systems such as copiers, phone, fax, postage etc.

Painful Step #5: Print hundreds (thousands) of pre-bills and distribute them.

Painful Step #6: Try and get the billing attorneys to review the pre-bills and return them to accounting.

Painful Step #7: Page through hundreds (thousands) of pages and extrapolate out the attorney changes on the pre-bills and re-enter them into the system.

Painful Step #8: Print the final bills, print the envelopes or labels, stuff the bills into an envelope, add postage, and deliver to the post office.

Painful Step #9: In some firms the attorney/secretary get the final bills and then feel the need to draft a personalized cover letter that must be sent with the bill.

Another painful aspect of all of this is the expensive staff requirements necessary to “babysit” this process. We’ll just save that topic for another discussion.

In upcoming posts we’ll look at each step, why is it a problem and what can you do to improve the process and become more profitable.

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

Attorneys as Consultants – High Value Work

By on April 3, 2011

The discussion in the press regarding AFA (Alternative Fee Arrangements) is often based on trying to change the basic business model away from the Billable Hour world for law firms. So the ultimate question is, what’s the most valuable type of work that attorneys do and, therefore, should it be priced as such?

 The answer is clearly “Consulting”, it is the advice they provide based on all the other activities that might take place surrounding a matter. Even the most complex matters an attorney might handle, the matter can be broken down into somewhat routine components:

  • Understanding the matter – low value
  • Discovery and research – low value
  • Internal processing, document creation, scheduling – very low value
  • Consulting on the clients course of action – high value
  • One-on-one negotiating, appearance in court – medium value

 The secret to profitability in the AFA world is to become as efficient as possible doing the low value work. High quality at low costs. There are many process improvement platforms available to law firms from the business world such as Sigma Six and the Crosby quality process. I’ll talk about the Crosby process in a future blog posting.

The bottom line; when evaluating an AFA arrangement, separate out high and low value work components, show the customer a matrix of fees based on value. Consulting should have the highest value and carry the highest premium.

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Categories: Best Practices, The Legal Market
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