Numbers don’t lie. But they can tell you the wrong story if you don’t read them correctly.A law firm has 5 key financial numbers that it needs to measure at least weekly:
Productivity % the percentage of total hours charged by fee earners to WIP
Write-on/off % the percentage of WIP billed either over or under the amount charged to WIP
Average rate the average amount of revenue earned per hour
WIP days the number of days of revenue that has been charged to WIP but unbilled
Debtors days the number of days of revenue that have been billed but hasn’t been paid by clients
what you can measure you can manage

There are many more key financial numbers that should be measured to provide a complete financial story for the performance of a law firm. Here I’m only focusing on the five key measures that drive improvement in revenue and cash flow on a daily basis. To improve the financial performance of a law firm, you must first get these right; then the other key numbers will take care of themselves.

These numbers are called key performance indicators (KPI’s). KPI’s are more than just information. These KPI’s measure the key revenue and cash flow activities of a law firm.

Albert Einstein defined insanity as doing the same thing over and over and expecting a different result. So it makes sense that unless you do something different with the activities that drive these KPI’s, you won’t get a different result.

Some key activities that will drive improvement in these KPI’s are:

Productivity %

Write-on/off %

Average rate

WIP days

Debtors days

The 5 key financial drivers for a law firm can not be assessed individually as they all impact on each other.

You need to focus on and understand the relationships between them, and the impact that a key activity that drives one KPI might have on another KPI, both favourably and/or unfavourably.

I spend most of my days working with law firms and other professional service firms on driving improvements in profit and cash flow. Fundamentally every business is the same, they just sell different things. Start by focusing on understanding the 5 key financial drivers and measure them at least weekly to understand them.

Next step is to develop strategies to improve them that have a positive impact on profit and cash flow.

For every law firm I offer a free Profit & Cash Flow Improvement Potential Review using your numbers. We will meet and discuss the financial position of your business, and discuss strategies that you can implement to drive improvement. I will also provide you with a report for you to refer to. Just click on to doing something different to achieve improved profit and cash flow in your law firm.

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