Founding and managing a law firm is a significant investment. It would not be amiss to say that the heartbeat of your firm is closely linked to your own when it comes to finances, reputation, growth, and overall success. As such, it is vital to keep an ear on that heartbeat.
Like any other business, reports and analytics are the best way for you to find out how well you are doing on various fronts. Given how easy it is to get caught up in unpaid administrative tasks, you may have to restrict your reporting to the most important ones.
5 Reasons Why You Need to Run Reports for Your Law Firm
1. It Helps You Manage Efficiency
For small and medium-sized law firms, there is a tendency to get hung up on administrative duties due to a shortage of administrative staff. This means that attorneys have to work harder to keep finances, human resources, marketing, client services, and other duties on track.
With the right reporting, you can identify areas where there are serious bottlenecks so that you can find ways to resolve them. This whitepaper gives a guide to some modern key performance indicators (KPIs) that law firms need to be measuring.
2. Create Repeatable Success
There are times when business is booming, the bottom line is healthy, but you can’t isolate exactly what caused the growth in revenue. Sure, more clients came by, but why? Can you repeat or improve on the same the following year to ensure sustained growth?
Reporting empowers you to create repeatable models of success by revealing the firm’s points of strength and weakness.
3. Improve Client Satisfaction
By now, you already know how fastidious clients can be. They want results now, and it is not always possible to give them that when you have other clients to worry about. Detailed productivity reports are one way to show that you are working as hard as is necessary and required for the sake of the clients.
4. Stay on Top of Your Finances
You would be surprised at how many law firms are running blind. Sure, the P&L reports might show a healthy profit margin and all your debts be current, but there is much more you need to think about than just profitability.
Check out this March 2017 issue from Harvard Law School which reveals how Law firms don’t just go bankrupt, they collapse.”
Outline Your Growth Trajectory
Reports help you look at your future and your past as well. You can see where you are coming from, learn from it, and use it to map out the future. Reports give you a solid data-backed base to make the right decisions for your firm’s growth.
The 5 Reports Every Law Firm Should Run
Just like a heartbeat, these five reports help you to figure out just how healthy your law firm is.
1. Utilization Reports
You know this report better by its most important metric: billable vs. non-billable hours. It clearly has a direct impact on your bottom line, but there’s much more to utilization rates than that. If you are spending too much time on administrative tasks, other areas of your firm such as case life cycles will be affected.
A low utilization rate also means that you have to charge clients much more to remain profitable because of fewer billable hours.
To calculate your utilization rate, you will need to keep track of all the activities you undertake in a given period, which is typically a workweek. Then, divide the actual billable hours by the total time spent working to come up with your rate. Although a rate above 60% is acceptable, getting closer to 100% means revenue for your firm.
2. Realization Reports
Realization reports can be unpleasant to attorneys, and that is not surprising. Between the time you have actually worked and billed for and the time you get paid for, you can lose a lot of money if your realization rates are low.
There are three realization rates:
- Billing realization rate: total hours billed vs. hours paid
- Collection realization rate: the amount collected from the hours billed, which is discussed more below
- Overall realization rate: cash collected vs. total amount you billed for. This rate has the potential to be quite low because it compounds the first two
A low realization rate is likely your own fault. Attorneys admit that “asking a client for money is embarrassing, uncomfortable, and distasteful.” Perhaps that’s why many firms have 10% to almost 40% of their collection’s overdue at any one time. With the right measures and systems in place, you won’t have to induce discounts or write-offs.
3. Collection Reports
Billing does not automatically result in payment, but you do know from experience that clients are more likely to make payments the sooner they are billed. The collection realization rate mentioned above refers to the total amount collected vs the total billed for.
A billing report doesn’t have to stop there, though. You should go further and obtain information about why your clients fail to pay promptly. A lot of the time, this is simply due to late, inaccurate, or irregular invoicing.
4. Productivity Reports
Productivity is an important KPI that modern law firms need to track. It is an important metric for measuring efficiency, performance, and the value each employee or attorney is bringing to the firm.
The productivity report will likely be extensive. There are many performance indices it represents such as:
- Workload handled in house and what each attorney handled
- How many matters were handled in-house vs. externally
- Open matters over time
- Case life cycle, which tracks how much time cases take from intake to payment
- Costs/spend per attorney
Productivity is about turning time into money, and this report is crucial because it highlights areas where you could improve your overall performance.
5. Expense Reports
This is straightforward for any law firm, especially since expenses and various costs can balloon so easily. You need to keep an eye on everything that you are spending money month to month. This report will show you what your biggest expenses are, where you can save money, and who is spending what.
Tracking and Billing Software to Make Reporting Easier
Today, it has become so much easier to keep track of all these reports and make administration in law firms much easier through technology. Thanks to software, you don’t have to compromise your utilization rate to keep your firm running efficiently and smoothly.
LawBillity, time and billing software for law firms, makes it easy for you track time, billing, realization, and expenses through an advanced all-in-one software platform. Our legal billing solution is an industry leader in comprehensive time tracking and reporting. We invite you to try LawBillity for free and experience how our time tracking solution can improve your law firms success.
Download our eBook: LawBillity Guide to Law Firm Software
Time Tracking & Billing Solutions For Legal Professionals
