Chicago_Virtual_Office_Defined.jpgNumbers may not be your forte but keeping track of certain numbers is key to the success of any law firm. Here are some key management and financial reports you should prepare – or have an outside source prepare for you – to understand the business health of your law practice.

 

  • Cash-flow projections: 

    Spreadsheets that show how cash comes in, and flows out of, your business – usually 12-18 months of revenue and expenses. Most firms run these reports annually and update them monthly.
  • Balance sheet:

     List of a firm's assets and liabilities on a particular date.
  • Profit-and-loss statement: 

    Charts a firm's profitability, either annually or quarterly. Shows revenues, costs, and expenses, and signals to a firm that, to become profitable, it must either cut expenses, increase revenue, or both. (Also called an "income statement" or "P&L" for short.)
  • Accounts payable aging: 

    Gives a picture of how much money a firm owes, to whom, and when. This valuable planning tool tells a firm which bills are due this month or somewhere down the line, usually in 30-day increments.
  • Accounts receivable schedule:

    A monthly schedule that shows how much each client owes the firm. This schedule is key to keeping on top of collections.
  • Accounts receivable aging:

     A periodic report that shows how long clients' bills have been outstanding. Collections that are slower than normal can be a warning that a firm is slowing down or taking on risky clients.
  • Hours worked: 

    Every lawyer knows there's a difference between hours worked and billable hours; both are included in this regular report that compares these hours to a daily, weekly, or monthly billing goal. A 2012 LexisNexis survey of about 500 attorneys showed a 33 percent gap between average hours worked and hours billed to clients. The biggest non-billable time-eater was "practice management and administrative tasks," like billing, accounting, and filing. According to the survey, bigger firms typically report fewer non-billable hours than small firms with one or two lawyers.
  • Write-offs: 

    Lists bills a firm never expects to collect from clients. Write-offs can result from a client complaint about service or billing, or they can result from hours spent on cases that a firm decides not to collect. Write-offs are often used as a snapshot of a firm's efficiency.

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