March 21, 2005
Invisible Expenses
I was cleaning out my “C” drawer the other day – which is where I put ”B” things that haven’t made it to my “A” list. If they never do, I eventually toss the “C” items. I came across an article by William Brennan of Altman Weil, Inc., discussing “Invisible Expenses". He rightly noted that write-downs of billable time can be one of the largest “expenses” of a law firm.
Think about it. If you had to show write-downs on your financial statements, how would it stack up against other expenses of the firm? The industry mean for realization of billable effort worked is around 90%. You may be better than average or worse. But, if you average and collect $15,000,000 in fees annually, that is after write-downs, adjustments and uncollectibles of almost a $1,700,000. Brennan noted that just write-downs of billable time averages about $30,000 for every lawyer in the firm. For a 40-attorney firm, that means an expense of $1,200,000 every year.
What is the answer? The answer is management. First and foremost, you have to have the information you need to manage and that should come from your law office business system. You want to know who is writing off billable time and whose work are they writing off and why? You must hold people accountable to justify their action. That justification will point you to the solutions. The firm will need to have the determination to implement the solutions which usually involve either changing the people or getting the people to change. Information is one thing, getting information in time to make a difference is another. Your law firm business system should track who is pulling their weight and who isn’t in all respects. Ideally, it should be able to send the appropriate person in your firm an automatic message when excessive write-downs are occurring ¾ not just measure write-downs after the damage is done.
Related posts
Filed under Cash Flow Issues by Tom Collins