Across the board, most midrange law firms fail to collect a material portion of their work product due to work flow, poor billing practices, and weak collection management.

 

Losses begin with poor time recording practices.  After-the-fact accounting for work performed remains a badge of courage for a portion of the baby boomer generation. Some firms simply have not considered it important enough to require its professional staff to use modern technology to track and report time as work is performed. Work product is lost to imperfect memory, unless contemporaneous time tracking is standard operating procedure.

 

Additional losses are attributed to what some have labeled invisible expenses. If you had to show write-downs on your financial statements, how would they stack up against other expenses of the firm?  The industry mean for realization of billable effort worked is around 90 percent.  You may be better than average or worse.  But, if on average you collect $15,000,000 in fees annually, that amount is net of write-downs, adjustments and uncollectible amounts of almost $1,700,000. 

 

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, whose work is being written off and why. You must hold people accountable to justify their actions.  That justification will point you to the solutions. 

 

True realization is difficult to measure because of timing differences between billings and collections.  If you want an accurate picture of what has been happening, use the backward-looking rolling computation method.  The rolling computation method mines your financial database, extracting only fully paid bills and then measures each layer of realization:

 

o        Pricing Realization: Lost revenue due to negotiated rates

o        Billing Realization: Lost revenue due to write downs before the bill gets out the door

o        Collection Realization: Lost revenue due to write offs, adjustments, and uncollected amounts after the client was billed

o        Overall realization: The overall lost revenue due to all the above

 

Your reports should measure realization by matter, client, working attorney, billing attorney, originating attorney, practice class, etc.  Rolling realization reports aren’t usually a standard report option, but your software vendor should be able to work with you to develop a set of custom reports that fits your particular firm.  While this backward-looking report lags months behind current firm activity, it is often an eye-opener that identifies previously unaddressed problem areas that are reducing the income of every partner in the firm.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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A recent study by Redwood Analytics as reported by Larry Bodine identified the distinguishing characteristics of clients retained by law firms.  The absence of those characteristics and the presence of others can identify clients most likely to go elsewhere.  The study is a reminder that law firms can use their business system to create a scorecard according to attrition risk and having done so can target those clients for remedial steps.  The scoring part is the easy part; developing a culture willing to take action to improve retention is the harder part.  As for actually producing the attrition risk scores, your business software should track the necessary indicators.  To produce a scorecard you will need a custom reporting procedure.  Law firms with in-house capabilities should be able to do that internally using reporting tools but, in any case, your software provider should offer custom reporting services for a reasonable fee.  If not, you have the wrong software or wrong software provider. 

 

What are the attributes you want to measure?

           

On the plus side Redwood found that long-term clients had the following attributes:

 

1. Provides the firm a large amount of legal work

2. Has a mature, established relationship with the firm

3. Uses the law firm for matters involving two or more practice areas

4. Two or more partners are significantly involved with the client’s work

 

Redwood also found the following:

• First year clients have an attrition rate of 50% compared to 20% for clients with a four year history. 

• Clients with only one partner involved have the greatest attrition rate.

• Too much or too little partner time on matters creates an attrition risk. Morepartnerincome believes that the danger zone is anything less than 10% or more than 60%. 

• Clients most at risk have an overall realization of less than 80%, i.e., discounts don’t retain clients.

 

You will have to play around with this but start out trying the following:

  

• Give 10 points to a firm whose prior year fee revenue met the 1% test.  (To keep it simple, divide your annual fee revenue by 100.  Use the amount in your report to identify clients meeting the “large amount of legal work” test.)
• Deduct 5 points if the fee revenue for the prior three months x four is less that the 1% test, i.e., fee revenue is declining. 
• Add10 points if the client has been with the firm for three or more years.
• Add 5 points if the client has matters in at least two practice areas.
• Add 10 points if the client has multiple billing (supervising) attorneys on active matters with billed amounts during the prior three months. 
• Add 5 points if partner hours on the prior three months’ bills were greater than 10% but did not exceed fifty percent.
• Deduct 5 points if unbilled fees exceed the prior two months’ fees.
• Deduct 10 points if billed but uncollected fees exceed the prior three months’ fees. 
• Deduct 5 points if prior year collections where less than 80% of the prior year value of billable hours at standard rates.  
• Deduct 5 points if the percent of partner hours on the prior three months bills were less than 10% or greater than 60%.

There is nothing magic about the above weights for the items listed.  You can and should vary the weights to fit your firm’s experience.  There is no perfect score.  Those with the highest points are the least likely to abandon the firm within the next three years.  Those with the lowest score are the most likely to leave. 

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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While attending the 2007 New York LegalTech, I visited with the PensEra team. The Montréal-based company had just landed Orrick and Linklaters as new accounts for its time capture system.  Linklater has 30 offices worldwide and Orrick’s 18 offices span seven countries.

 

Why would these global firms replace their existing time entry systems with PensEra’s TimeKM™ system?  PensEra re-engineered the process.  Rather than approaching time entry from the perspective of the accounting people, PensEra did it from the attorney’s point of view.  It would be wrong to think of TimeKM as a time entry or time tracking system.  It is an anywhere, anytime, from any device time capturing system.  Rather than pushing more work and coding off on the attorney, it saves the attorney steps. It turns phone calls and e-mails into time entries with a click.  Other billable time can be captured as easily and coding and other niceties can be added later or even taken care of by an assistant if the attorney prefers. It is a collaborative model that simplifies and streamlines time-tracking for the working legal professional.

 

PensEra is the Juris Alliance Partner through which Juris law firms have 24/7 full mobility functionality using BlackBerry® or other PDA devices.  If you would like to know more about PensEra’s ability to turn time capturing on its head and give your firm’s legal team any time, anywhere, any device access, contact PensEra Knowledge Technologies at 800/620-881 or contact the Juris team at 800/377-3740 to learn how TimeKM™ and TimeKM Mobility™ have been integrated into the Juris law office business system.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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A law firm’s financial system involves more than a general ledger and financial statements – it includes the billing system, accounts receivable, cash receipts, disbursements, and trust accounting for client funds. The right business system will put more money in partner/shareholder pockets while making everyone’s job easier.

The system should provide clear and consistent audit trails with good security controls over who can see and do what. You want information to be directly accessible by those who use it: the front office of the law firm. For example, billing attorneys should be able to access all of the financial information related to a client or case. They should be able to access that information from their workstation without having to go through accounting or a secretary. From their workstation, they should be able to view bills previously sent to a client rather than wait for paper documents to be pulled from a file, copied, and routed to an attorney. The best systems take advantage of dashboard technology to provide instantly digestible information that provides working attorneys and those involved in management with situational awareness.

The system should make it easy for legal professionals to track and record billable time regardless of where they are working—in the office, from home, or on the road—including via PDA devices like the BlackBerry®. The best system will let the attorney track and record time through their preferred software or device—for example, while in Microsoft® Outlook® or using a specialized commercial case management system. In short, law firms need a lot of flexibility because of the enormous diversity that exists in most law firms. The best system will accommodate those diverse needs. The best system will connect to other software used by the law firm so information flows between the firm’s business system and those other systems.

On the billing side, it isn’t enough to just print a bill. Today, clients set the rules and law firms have to comply with mandated requirements if they want the business. Pricing and bill format flexibility is a must. And the firm often has to provide the bill electronically in the client’s specified format. Usually it is the firm’s largest clients who mandate those requirements. Billing by e-mail is on the increase. Make sure the system you select provides for automatic bill presentation by e-mail. Automatic testing of time and expense entries against client engagement rules can eliminate rejected bills and reduce client adjustments, making a material difference in realization.

From an efficiency standpoint, transactions should be entered once and once only. Look for built-in wizards to perform tasks like payments to the bills being paid or performing complex tasks like voiding checks.

Once the basics are covered, what makes the difference between one system and another is the ability to use the information for ad hoc analysis and exception reporting. The best systems are proactive, alerting responsible individuals in the firm when certain exceptions occur—i.e., an account has exceeded or reached a certain level of budget, a check has been written for an unusual amount, billable time is missing from a timekeeper, a client’s trust balance has dropped below the appropriate level, etc.

You don’t want a system that disrupts the normal routine of the office every month-end. You don’t want a system that will not share information with other systems used by the law firm. You don’t want a system that forfeits your opportunities to serve the nation’s largest consumers of legal services because it can not meet their mandated requirements. You do want a system from a vendor who backs up their software with a proven track record of services – conversion, training, and ongoing user support services. Check references before you write your check for new software.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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• Tracking time

When it comes to pricing, the firm’s focus should be on more than its published rate list. Look for measures to increase the effective rate being realized by the firm.

Law firms do not do business with every client on a single hourly rate schedule. Those exceptions are often the key to a low effective rate. On the other hand, firms with a standard rate schedule may be overlooking the opportunity to price higher value services at a higher rate. In addition to periodic review of the firm’s standard hourly rate schedule, the firm should be engaged in the following steps to increase effective billing rates and improve partner income.

• Increase existing low negotiated rates to their higher competitive level
• Set higher rates for selected areas of specialization and expertise
• Identify new specialty areas and train or acquire expertise, thereby increasing value and the potential for increased billing rates. Market for better clients—those willing and able to pay more
• Develop and enforce case acceptance standards that emphasize the value of matters undertaken
• Improve (and market) the quality of service, presentation of work product, technology, efficiency and responsiveness
• Take advantage of opportunities for alternative billing (value based) pricing
• Invest in a better business system for pricing flexibility, easier price changes, improved anniversary date tracking, etc.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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Over the last several weeks, I have had the opportunity to discuss the results of the Juris Law Firm Economic Survey with managing partners from across the country.  Today I will be doing the same in Orlando at a breakfast for managing partners organized by the Central Florida chapter of the ALA.

 

In addition to financial information, the survey polled participating firms about their financial management priorities.  This is a managing partner wish list for better tools to guide the firm. Here are their top wishes:

 

1. Real-time information for fee earners

2. Report writing systems

3. Budgeting & forecasting

4. Firm management education

5. Benchmarking tools

 

The top desire for real-time information signals that traditional reports are no longer adequate in today’s high-speed world.  Managing partners want actionable information that is instantly digestable and in time to do something about it.  The new dashboard technology arriving on the scene is delivering on this need for constant situational awareness.

 

Likewise, the second wish on their list for better and easier-to-use layperson report writing tools arises from frustration over the value of traditional reports.  Partners want timelier information in smaller doses and, preferably, only when their attention or action is needed. They want to control the flow of information according to what is important to them at the time. Delivering all of that is a big deal for software vendors. But the leading business system vendors are in business to address buyer preferences, so some exciting new breakthrough products are hitting the market—for example, the new Active Information from Juris, Inc.

 

Benchmarking has moved up to the top five wish list, reflecting the growing awareness of managing partners that their firms can ill afford to continue flying blind. They need competitive intelligence.  They want to know key financial information from their peer and competitive groups. Surveys that are 12 to 18 months behind the curve aren’t satisfying that need.  Thus, we see the rise of new continuous benchmarking services from the likes of Thomson, Redwood Analytics, and Juris.

 

I would prefer to have seen strategic planning on the partners’ wish list, but I will settle for budgeting and forecasting.  I am a big proponent of financial modeling. While detail budgeting at the operations level should be standard procedure, forecasting and testing “what if” scenarios requires a simplified approach.  When models become too complex, they can confuse rather than enlighten. 

 

I would also like to have seen “modified compensation plan” on the wish list.  All firms need to carefully examine the impact of their current compensation plan on the firm’s collective results.  Is your compensation plan a positive influence toward achieving the firm’s goals and objectives, or is it interfering with those goals and objectives?  

 

Finally, I trust that www.morepartnerincome is a helpful stocking stuffer toward fulfilling their wish for more management education.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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Workflow is one of the hot new buzz words driving technology investments in the AML 200 circles and among the global 100. In a recent article in The National Law Journal, Kevin Berry wrote “One of the fastest-growing trends in the legal technology is the business-process management. Known in wider technology circles as BPM, this approach is more commonly called ‘workflow’ in the legal market.”

Unfortunately in many cases workflow investments are in reality little more than jerry-rigging to make legacy or poorly designed functions work in harmony with the flow of work. I was talking with a Juris specialist the other day who was telling me about her recent visit with a 100+ attorney law firm. The law firm had paid their existing business software vendor (a Juris competitor) for an automated client input form. Why? It turns out that setting up a new client or a new matter in the software was so cumbersome and required so many different steps that it interfered with the logical flow of work.

Before you invest in workflow software, broaden your view and look at replacing your business system. Workflow investments that are overcoming weaknesses of your exiting system can be the wrong move—one that prevents you from taking advantages to current and future advances in technology. You are likely to find that updating your business system will eliminate the need for the layering on an additional workflow system and, while you are at it, gaining important performance increasing benefits that have become available through newer technology.

The value of that new technology came home when I read the comments of the Juris CEO in a recent e-mail to Monica Bay. Monica is the editor-in-chief of Law Technology News and had requested his comments regarding an article appearing soon.

Why move to a newer business system rather than pour money into projects that keep the firm dependent on its older systems? That question is partially answered by some of Stephen Collins’ e-mailed comments:

“With today’s advances in software and communications capability, managing partner and working attorneys can take advantage of dashboard technology for continuous situational awareness over their area of responsibility. Today’s systems can track activity and events automatically alerting the appropriate individual when their attention is required. Rather than digging through traditional reports, busy attorneys can now receive just the actionable information they need in instantly digestible forms. Today’s mobile attorney has a lot more capability than just e-mail, contacts and time entries. Ipsos-Reid, one of the top 10 research firms in the world, reported that surveyed firms averaged 53 minutes per day of recovered productive time using mobile devices like the BlackBerry™—almost an hour per day per fee earner! For an attorney that is billable time—previous downtime that is recovered because of the anytime/anywhere convenience of going mobile with calls, e-mails, appointments, time tracking, etc. Fifty-three minutes, almost an hour, per day is big money.”

The message is clear. Taking advantage of current technology business systems can increase partner income and client satisfaction. Look carefully at workflow investment proposals. If its purpose is to overcome weaknesses in you current system, look first at moving to a more modern business system. Making a move can put money in partner pockets rather than take it out.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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I have seen many different case management solutions. All of them were pretty good. Many law firms have already invested in specialized commercial case management products, yet many have not. Unfortunately, I have seen too many law firms who, after investing significantly in a case management system, never really got it off the ground.

Case management isn’t a piece of software. If you are a practicing lawyer, you are managing your cases. Case management software is just a tool for doing so, but so are file folders and day timers. So is the Microsoft® Office Suite including Outlook® — which, if the truth be told, is the most widely used software by law firms for organizing and managing law firm cases.

The ideal objective is to automate as much of the case activity as one can. That is really what case management is all about—making the process for handling each case as routine, intuitive, and automatic as possible. The more homogenous your practice is, the more likely you are going to be able to accomplish that objective. The more diverse your practice, the tougher it will be to get everyone using the same set of specialized tools.

Trying to fit different specialized practice areas on the same set of case management tools can create inefficiencies rather than efficiency. You always need to keep the objective in mind. The objective is to be able to handle the practice area more efficiently. To that end, you may need different tools for different folks. There is no requirement that everyone use the same case management tool. For example, the litigation group may use a product like Legal Files, while the real estate group goes in a completely different direction, and still others may use Outlook. I should note that Juris is an example of a law firm business system that will connect to multiple case management solutions, including Outlook, even within the same law firm. So it isn’t necessary to give up integration if multiple case management products are appropriate in your particular firm.

In many respects, any tool you use for case management is a blank sheet of paper. To successfully implement case management, you have to be committed to training and investing the resources to set up the system to fit your practice areas. You have to continue to invest to keep your system fine-tuned to those needs. It is not something you just take out of the box and start using. What comes out of the box is just the beginning.

Do you need a case management system? Unquestionably, you do. Do you need a commercial case management system, or are you better off using a combination of general purpose tools to develop your case management solution? That is a better question. It is the objective that is important. The tools you use to get there are less important than just getting there. You need to look at the commercial products related to your particular needs and firm culture. You need to research the existing case management capabilities and limitations of your business software in combination with other software such as document management, file management, Microsoft’s Office Suite, etc. You may not be using the case management tools you already have through the connective capability of your existing software.

The commercial case management system that best fits your firm will vary depending on your size and the character of your law firm. To varying degrees, they include the following functions:

• Client intake information including billing arrangement etc.
• Case information: contacts, counsels, experts, witnesses, facts, dates, issues, strategies, etc.
• Calendaring, docketing, reminders, to-do lists
• Conflict searches
• E-mails and internal documents related to the case
• Discovery documents
• Notes
• Templates of case related information used for document assembly or preparation

Today you have powerful case management tools and comprehensive commercial products to choose from. The tool you use isn’t as important as the effort you put into the task.

When considering the addition of case management software, find out what systems work with your law firm business systems. You want the back office and front office systems working together. If you are a Juris law firm, most of the popular case management systems connect to Juris. Juris also works with Microsoft Outlook. It even expands Outlook’s capabilities for activity tracking and docketing. Many of the commercial case management vendors are members of the Juris Alliance Network as Technology Partners.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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Measurement improves performance. It doesn’t take a rocket scientist to understand why athletes measure performance and why they so carefully study the performance of others. When you have a target and when you measure your own performance against that target, it becomes more achievable.

Intuitively, managing partners understand. For years they have purchased every law firm survey they could get their hands on. Unfortunately, the surveys were always at least one year outdated. Most firms could never find survey segmentations that represented a perfect peer group for comparisons.

That world is beginning to change. Live benchmarking and timely shared information among individual anonymous members of peer groups will give law firms realistic targets for identifying opportunities for improved performance and increased per partner income. Just as record keeping in sports has changed the quality of the game live peer group benchmarking will change the practice of law for the better. Consumers of legal services will benefit as law firms compete to provide competitively better service at lower cost through efficiency. Measurement, especially competitive measurement, improves results.

Who are the players?

Redwood Analytics: The first on the field is Redwood Analytics. Redwood has a significant presence among the AmLaw 200 law firms. Redwood works with each participating law firm to map data from the law firm’s existing business system to Redwood’s proprietary extraction tool. Once implemented, performance data is automatically extracted to provide actionable performance metrics for the individual client. The extracted information is stripped of its firm identify and added to Redwood’s database of participating firms. That anonymous database is used by Redwood to provide participating law firms with comparative performance metrics for their selected peer group. Those comparisons put Redwood clients on track to match and exceed their target group—driving constant improvement.

Thomson Corporation: Not to be left out, Thomson West recently announced the West PeerMonitor™. As with Redwood Analytics, the service is targeted toward large law firms. Thomson’s news release explained the new services: “Law firm leaders, often frustrated by the lack of real-time competitive information available to them, now have an answer that will help them to make more informed management decisions.” According to Thomson West, PeerMonitor provides law firms with competitive facts as current as the most recent monthly financial statements. PeerMonitor enables law firm executives to benchmark their business performance to a named group of peer law firms across a range of pricing, profit and expense categories.

Juris, Inc.: The Company is targeting a release of its new Peer Group Benchmarking service, Juris® Insight, for October of 2006. Unlike Redwood or Thomson, the Juris peer group benchmarking service is targeted toward midsized law firms. The service will eventually be available to both law firms using Juris law firm business systems and those using competitive financial systems. However, the initial release will be limited to Juris law firms which comprise more than one fourth of all US midsized firms. Like Redwood and Thomson West, information available to participating firms differs from traditional survey approaches in that it is collected automatically on a real time basis. Performance information is extracted from the financial systems of participating firms with all identifying names purged, and is held in a secure database. Participating firms can compare their own performance against a peer group they select. For example, a firm comparing its performance against a peer group of five firms may compare its performance to the aggregated results of the best two or three and worst two or three, but never against a single firm in the group. The identity of individual firms is masked at all times.

Today, law firm managing partners and executives invest significantly in the purchase of year-old surveys, and then invest their time and staff time in comparative analysis against imperfectly matched segmentations. They do this in an effort to collect competitive intelligence as a guide for improving the law firm’s own performance. This is all about to change—not only for the mega firms, but with Juris Inc.’s entry for midsized firms as well.

Real-time peer group benchmarking takes law firm decision making to new levels and promises to place participating firms on the track toward continuous improvement. Like athletes in training and competing against the best, the accomplishments of each contributes toward improvement across the entire field.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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In general firm's looking to increase partner income should engage in structured planning to identify the main things the firm should concentrate on to improve the business over the long term.  Almost all need to improve management with focus on the law firm business model - leverage, utilization, rate, realization and margin. This post deals with the firm's effective or blended rate. 

 

The list below is a reminder of steps that you can take, among others, to increase billing rates and improve per-partner income.

 

Steps for Increasing the Firm’s Effective Billing Rate (its Blended Rate)

• Increase low rates to their higher competitive level
• Set higher rates for selected areas of specialization and expertise
• Take a more disciplined approach to annually reviewing and renegotiating rates
• Identify new specialty areas, train or acquire expertise, thereby increasing value and the potential for increased billing rates
• Market for better clients; those willing and able to pay more
•  Develop and enforce case acceptance standards that emphasize the value of matters undertaken
• Improve (and sell) the quality of service, presentation of work product, technology, efficiency and responsiveness
• Take advantage of opportunities for alternative billing (value based) pricing
•  Invest in a better business system for pricing flexibility, easier price changes, improved anniversary date tracking, etc.

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