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INCREASING PROFITS

Some not-so-difficult ways to increase revenue

Need a better bottom line?

Don’t go the way of most firms and start “stripping the heck out of the operating costs.” The real dollars come from increasing revenue. And doing that is often more common sense than magic, says financial consultant Michael R. Marget, managing director of 4L Law Firm Services in Tampa.

Get under the payment wire

The first and easiest way to improve revenue is to bill early in the month, Marget says.

Don’t wait till the last week to send the bills. Get them out by the 15th.

Do that because most large clients pay on the first of the month. So, if the invoice doesn’t leave the office until the last week, “it could be a full month before the firm gets paid.” But if the bill arrives well before month end, it may well get paid on the first.

Getting the bills out early does more than improve cash flow. It ensures that every bill arrives while the client still has an appreciation for the work—and is more willing to pay it.

Early billing is possible only if the firm sets an unyielding timetable that all billers have to follow, he says.

A schedule many of his client’s firms follow is as follows: All hours must be entered into the system by the close of business on the third business day of the month. Pre-bills must be forwarded to the attorneys by 9:00 a.m. on the fourth business day and attorneys have until the ninth to send their edited bills back to accounting, who sends them out to clients by the fifteenth.

Whatever the schedule, list the dates on the firm’s 12-month calendar to make sure people stick to it. Then there’s no excuse for missing a deadline.

Marget says most offices base income projections on how much gets billed each month, but the true picture is whether those bills leave mid-month or on the last day. “The faster they go out, the more valuable they are to the firm,” he says.

Don’t lose a billable minute

It’s also important to consider when the hours are entered into the system.

For best revenue results, set a requirement that all billers track their time contemporaneously.

If on-the-spot time entries aren’t possible, end-of- the-day entries are acceptable. But don’t go beyond that. To do so is to invite lost hours.

Immediate time-keeping is the only way to ensure that no minute goes unrecorded, Marget says. And those unrecorded minutes add up. General estimates are that “10% of billable time evaporates” when attorneys don’t record their time immediately after completing the work.

Forbid the secret write-offs

Another revenue improver: don’t allow any “secret write-offs.”

New associates are usually the culprits here, Marget says. It’s not uncommon for them to shave off a few minutes, or even a few hours, before recording their time.

The thinking is, “I haven’t been very effective. I worked the whole day on this matter but still haven’t finished. I’m going to bill five hours instead of seven.”

Make a rule that the partner in charge is the only one who can edit hours.

Time expectations aren’t an associate’s call, he says. All firms recognize that there are time inefficiencies as the associates get up to speed and they account for that when setting the associate rates. If the associate is billing at half the partner’s rate then seven hours at that level might be the appropriate charge. It may even be to the client’s benefit.

What’s more, if the time isn’t entered correctly, one discount can be added to another.

Suppose an associate throws in a 10% secret write-off. Later the client complains that the bill is too high and the partner, not knowing about the first write-off, writes off another 10%. The firm has just lost almost 20% and isn’t even aware of it.

Set expectations for everyone

Revenue can improve even more when the firm sets annual expectations for its billers and that includes equity partners, non-equity partners, associates, and paralegals.

Marget recommends firms research and compare billing requirements at firms the office competes with.

The hours will have to be adjusted to accommodate the size of the firm and what different billers bring to the table. But raise expectations to a level similar to what the competition is requiring.

Specific expectations are a necessity if the firm is to see improvement, he says. People don’t respond to vague requests like “we want you to do better.” They need to have specific goals to work toward.

As to how much to raise the bar: be realistic. Don’t expect someone who’s billing 2,000 hours to increase that. On the other hand, it’s not unreasonable to expect someone who’s at 1,400 hours to increase to 1,600 hours.

Along with that, don’t demand more hours without first asking timekeepers if there is anything that might keep them from meeting the increase in hours.

The responses could be telling. The partners may be hoarding the work or too much work may be getting pushed onto the paralegals.

Listen to what’s said and correct what needs to be corrected, but don’t accept excuses, he says, particularly when it’s someone saying they “can’t bill anymore hours because they do a lot of marketing.”

The simple truth is that anyone in private practice is an entrepreneur who must do whatever marketing it takes to be successful.

And no one becomes successful watching the clock and thinking, “I should only have to bill X hours because I have to do the marketing.” The marketing goes on top of the regular work.

A firing squad for collections

The last revenue improver is often the very one that brings in the most money: working the collections.

Law firms are notorious for letting collections slip, Marget says. And they lose a lot of money because of it.

“Collections need everyone’s attention all the time,” he says. The older an invoice, the less likely it’s going to be paid.

A logical starting point for collection work is 90 days after the invoice goes out. After 90 days, the firm is basically providing the client with an interest-free loan.

But the best possible collections come from what he terms “the “firing squad approach”—or regular monthly meetings where the partners review all uncollected bills and each partner “has to explain to the others why the bill hasn’t been collected.”

“Partners give themselves a lot of excuses,” he says. “But it’s tougher to give their partners a lot of excuses.”

Having to face the money every month makes them accountable to one another.

Those meetings make it clear when it’s time to set up a payment plan for a client who’s falling behind. They also help identify when it’s time to stop throwing good time at a matter the firm probably won’t be able to collect on.

As well, the meetings ensure that all the collection matters get settled before the fourth quarter of the year. Clients know that firms want to get their money in by the end of the year and are therefore far more amenable to cutting deals in January than they are in June.


Related reading:

Use weekly financial reporting to keep partners aware of cash flow


Job descriptions make paralegals a profit center


Don’t give discounts to clients without first calculating cost


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