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Strategic financial planning is essential to ensure firm stability and growth. Modern law firms need precise financial data to target opportunities to improve their bottom line and set them up for success, all of which can be accomplished with industry-leading law practice management software (LPMS).
Here are five steps to optimize your law firm’s financial planning.
Take the pulse of your firm’s financial health by reviewing your financial statements from your LPMS. Automated, detailed income statements and balance sheets save time and reduce the risk of errors associated with manual data compilation. Reviewing financial and performance reports can help you identify areas of concern so you can take proactive measures to address potential issues.
The most accurate records are found in an LPMS that integrates timekeeping, billing, and accounting data all in one platform. Integration helps firms avoid double-entry recordkeeping between multiple software applications and ensures data congruency across the entire system: if you enter data once, it populates everywhere.
Leading LPMS platforms also integrate general ledger firm accounting and trust/retainer accounting in one platform. For example, Centerbase’s accounting tools double-check all of your client and firm accounts and complete a three-way reconciliation of your trust accounts, comparing your bank balance to your trust ledger to the sum of your individual client ledger balances, keeping you compliant with IOLTA best practices and state bar requirements.
Conduct a comprehensive assessment of the financial objectives you set for the firm in the previous year. Review your progress against goals, examining aspects such as unexpected expenses, marketing outcomes, and shifts in advertising costs. A detailed analysis enables informed adjustments to your business strategy for the coming year and helps you adapt to changing market dynamics.
Your LPMS likely has features for setting and tracking financial goals that allow you to monitor your fiscal performance in real-time. Leading LPMS platforms give you easy access to key metrics with customized dashboards and reporting that allow you to quickly evaluate whether you are meeting their financial objectives and make data-driven adjustments.
After scrutinizing whether you met last year’s goals, it’s imperative to update your firm’s budget for the upcoming year. Consider any changes in the business landscape, including new expenses or variations in revenue. Smart resource allocation and accounting for unforeseen expenditures are critical to maintaining financial stability.
Your LPMS can help you create, manage, and update budgets seamlessly. Top platforms integrate with other financial tools that allow you to adjust budget allocations based on changing circumstances, ensuring that your budget accurately reflects your firm’s financial priorities.
Understanding incoming and outgoing cash and taking preemptive steps to address potential cash flow challenges are imperative. LPMS makes it easy to track client payments, invoicing, and expense management in real-time so you can take a constant pulse on your cash flow. This data can help you negotiate extended client payment terms and manage expenses more effectively.
Identifying opportunities to reduce costs is integral to enhancing net revenue and overall profitability. Law firms can explore various strategies, including adopting more cost-effective solutions and streamlining operational processes. Your LPMS can identify areas where you can optimize costs. Check your software’s expense tracking features to analyze spending patterns and identify opportunities for negotiation with suppliers. A detailed breakdown of expenses can help you make informed decisions on cost-reduction strategies.
Finding new ways to boost your firm’s revenue can be difficult, but data from your LPMS can highlight the way. LPMS with robust profitability reporting tools can help you track profitability at the individual, practice group, office, and entire firm levels to pinpoint how to improve your firm’s financial performance. Based on your results, you may want to expand your firm’s service offerings, target new client demographics, or revisit pricing structures.
LPMS with advanced automation features, such as automated time capture, can help ensure that you are maximizing your attorneys’ billable hours. This software can also help you accelerate invoicing and follow up with slow-to-pay clients, improving your revenue stream.
Engaging the services of a professional accountant or financial advisor provides valuable insights and ensures that financial decisions are grounded in expertise. Your LPMS is a collaborative platform where financial professionals, such as accountants or financial advisors, can access relevant financial data. Centerbase offers accountants a free login to help with end-of-year audits.
Strategic financial planning ensures modern law firms run like a business. Following these tips and optimizing your use of your LPMS can position your firm for sustained growth and profitability.
Check out Centerbase’s robust accounting and financial management features to learn how we can help you strengthen your law firm’s financial performance.
Written by Robin Neill
Law firms, like any other business, need to have a firm grip on their finances to thrive and grow. Yet many law firms struggle with budgeting and other tasks that help their firm run like a well-oiled machine.
In this article, the first in our new series on budgeting for law firms, we’ll explore the challenges that law firms face when it comes to their finances and the benefits of a law firm budget.
Why do law firms struggle with budgeting?
Budgeting has never been a favorite task of legal professionals. After all, attorneys don’t typically go to law school to earn a business degree. They’re trained to understand the intricacies of the law, not the detailed aspects of business planning.
However, the business side of law is just as important as legal practice. The problem is, law schools don’t offer courses that teach business skills, such as how to manage law firm finances. This knowledge gap can hinder attorneys’ ability to feel confident about business financial decisions.
Moreover, most attorneys don’t want to focus on the numbers. They want to practice law and provide legal counsel to their clients. There’s no extra time in the billable day to crunch the data and generate budgets. This can overshadow the importance of understanding a law firm’s financial health and lead to neglecting the practical business aspects of running a firm.
Finally, many attorneys think they can set their firm’s budget once and forget it. Attorneys may struggle to balance client demands with long-term strategic planning for the firm. Law firms must recognize that budgeting is not a one-time event but rather an ongoing process that requires regular monitoring and adjustment.
Fortunately, there’s a growing understanding within the legal industry that law firms are, at their core, businesses. While the law is the foundation of the work, the business side is equally critical for long-term firm sustainability and growth.
Why budgeting matters for law firm success
Why is budgeting so important for law firms? The answer lies in its direct impact on the firm’s financial sustainability. Here are three key reasons why law firms should prioritize budgeting.
Where can law firms get help to improve their budgeting?
Law firms don’t have to go it alone, muddling through the budgeting process. a variety of resources that can help.
First, consider whether you need to bring in an outside expert, such as an accountant or financial manager. You need access to an expert who understands the intricacies and challenges specific to law firm budgeting.
Podcasts and online resources can provide insights into financial management best practices. Attorneys may also seek advice from local or state bar associations, which may offer salary surveys and other useful financial data.
Additionally, attorneys should embrace collaboration. The legal profession is filled with experts who love to share their experiences and provide feedback. Asking for referrals and engaging in dialogues with peers can lead to fresh perspectives and better financial management.
And, of course, legal technology is a game-changer for financial management in law firms. Implementing a robust system that tracks expenditures and provides meaningful financial reports is essential. These tools should offer insights into cash flow, expenses, profitability and more.
Budgeting leads to a stronger law firm bottom line
Budgeting isn’t just about numbers; it’s about building a strong foundation for the future of a law firm. When attorneys recognize the importance of budgeting and seek the right expertise and tools, they can positively transform their firm’s financial practices.
Sign up for a free demo to learn more about how Centerbase can help you take the pain out of the budgeting process.
Written by Carson Bailey, M. Ed.
The legal landscape is evolving rapidly, driven by advancements in legal technology. Law firms continually seek ways to improve efficiency, streamline operations, and provide better client service — and that requires them to integrate new software into their daily workflows.
However, introducing new software to a law firm often faces resistance. Lawyers and staff prefer to focus on delivering legal services, so adopting new technology can disrupt their routines. Moreover, lawyers and staff view software training as a bore and a chore. The traditional sit-and-get training format often doesn’t meet the needs of adult learners, frustrating them and turning them against new software before they can even try it.
When legal professionals aren’t fully trained on software, they often don’t fully use that software or neglect it outright, reducing the value of your law firm’s investment.
Fortunately, learning management systems (LMSs) have revolutionized training and encourage the adoption of new legal technology. Before we dive into the benefits of using an LMS for software adoption in law firms, let’s quickly review what an LMS is.
What is a learning management system (LMS)?
An LMS is a software platform that facilitates the creation, management, delivery, and tracking of educational content. Leading legal software providers offer a specialized LMS designed to meet the unique training, compliance, and knowledge management needs of legal professionals and staff.
A software provider’s LMS is a foundational part of software training; it’s a centralized hub for all training-related activities, delivering, tracking, and managing various types of professional development and knowledge resources and streamlining the learning process.
How can law firms implementing new software benefit from an LMS?
An LMS can enhance the efficiency, effectiveness, and accessibility of training on new software for lawyers, legal professionals, and other staff. It empowers users to become proficient with software tools, ultimately contributing to improved productivity and the successful integration of software into the law firm’s operations.
At Centerbase, self-guided learning through our LMS accelerates the training process, giving users a head start before our virtual and in-person training sessions. Our LMS kick-starts the learning process, so users know what functionality Centerbase offers and what questions to ask, streamlining their training and ensuring they understand the solution and its benefits before using it.
Here’s a summary of the benefits of our LMS.
Start optimizing your law firm software adoption with an LMS
An LMS is pivotal in offering flexible, relevant, and personalized training experiences. By adopting the right training methodologies and involving the right stakeholders, law firms can navigate software implementation challenges and equip their teams with the skills needed for a competitive edge in the legal industry.
If you’re ready to implement new software, get a free demo of Centerbase and discover how we’ve revolutionized law firm training for the way your lawyers and staff prefer to learn.
Many law firms have relied on PCLaw for years, but it’s becoming increasingly clear that this aging software falls short of meeting the evolving needs of modern law practices. PCLaw is sunsetting and won’t be migrating to the cloud, and this summer, the company suggested that users should transition to another solution, LEAP, a solution that offers automated legal forms, document management, and legal trust accounting tools. The problem is, even that solution falls short of the cutting-edge practice management technology law firms need to remain productive and competitive.
So, let’s take a look at the considerations of staying with PCLaw and transitioning to LEAP and why choosing a new solution — Centerbase — could be the right move.
What are the drawbacks of using PCLaw?
There are multiple pain points that PCLaw users have experienced over the years — ones that a move to LEAP can’t solve, but a more advanced legal practice management solution could.
How does Centerbase resolve the pain points of PCLaw?
Centerbase offers a compelling solution to these PCLaw pain points and is a robust solution designed to meet the needs of modern legal professionals. Offering greater flexibility, mobility, and features that streamline the practice of law, here’s a summary of the advantages that Centerbase offers over PCLaw.
What are best practices for law firms navigating the transition to new legal technology?
If you’re considering making a switch from PCLaw, here are five tips that will help you ensure a smooth transition to a new software solution.
Law firms can’t afford to not switch to Centerbase
If you’re currently using PCLaw and suffering from the limitations of this aging software, it’s time to explore better alternatives. Centerbase offers a modern, feature-rich solution that not only addresses the pain points of PCLaw but also empowers your law firm to thrive in the digital age.
Don’t wait; make the switch to Centerbase today and experience the transformative power of advanced legal practice management software. Contact us to get a free demo and learn how you can transition your law firm to Centerbase today with no downtime.
Written by Carson Bailey, M. Ed.
Before you can implement new legal software, you must convince your lawyers and staff to adopt it. And to adopt new technology, legal professionals must understand its features and functions — and how they will benefit from them. That requires in-depth training.
But training can’t be one size fits all. After all, no two people learn the same, and you need to cater to their learning preferences to maximize their information intake — and the return on your technology investment.
The success of your new legal software hinges on user competence and confidence. In this article, we’ll share how to design a training program as part of your change management initiative when adopting new software that will appeal to your team and ensure your new solution achieves its expected returns.
But first, let’s explore why you should invest in training.
While balancing employee training and billable hours can be challenging, the rewards that stem from well-trained staff far outweigh the initial resource investment. Here are just some of the benefits of prioritizing staff training.
To achieve these benefits, you must ensure that your training follows best practices.
Setting up training for lawyers and staff on new law practice software requires a strategic approach to ensure a smooth transition to new software. To encourage lawyers and staff to engage with training, you must align it to their needs and make it valuable and motivating. Time is precious, so training must be efficient and effective, given the responsibilities already filling legal professionals’ plates.
Consider following these best practices to strengthen your next software training:
The successful implementation of new software in a law firm requires a comprehensive training strategy. Adult learners have distinct needs and preferences, and tailoring training to meet those needs is critical for a seamless transition.
By adopting the right training methodologies and involving the right stakeholders, law firms can navigate the challenges of software implementation and equip their teams with the skills needed for a competitive edge in the legal industry.
Contact us today to learn more about how Centerbase training is designed to ease the transition to new technology and accelerate your law firm’s productivity.
Written by Carol Patterson
Law firms that solely rely on tracking billable hours might assume that each legal matter they handle is equally profitable. This assumption is based on applying an attorney’s individual hourly billing rates to the client hours they devote to each matter. But this isn’t the most accurate way to determine matter profitability.
Some types of client engagements are likely to incur significantly higher costs than others, while some matters generate greater profit margins. The only way to tell which matters the firm should invest its time in is to look at profitability at the matter level.
So, what is matter profitability, and how can you maximize it at your firm? In this article, we’ll explore the concept of matter profitability and provide practical strategies to help optimize your law firm’s financial performance.
Matter profitability refers to a law firm’s ability to generate optimal revenue and profits from each legal case or matter they handle. It’s a critical metric that directly impacts a law firm’s financial health and long-term sustainability. It goes beyond just billable hours. It involves considering various factors, such as the complexity of a matter, the expertise required to handle the matter, the resources allocated to complete the work, other expenses associated with the work, and the efficiency of the legal team.
To calculate matter profitability, law firms must deduct all the direct and indirect costs associated with handling a particular matter from the revenue that the case generates. Direct costs include attorney fees, court filing fees, expert witness fees, and other case-specific expenses. Indirect costs include overhead expenses, such as office rent, administrative staff salaries, and general administrative costs.
Fortunately, law firms can employ several strategies to improve matter profitability without compromising the quality of legal services provided. It all starts with the data you collect on your firm’s profit margins. Let’s take a look at some common scenarios for law firms and how firms can improve their matter profitability.
Matter profitability starts with selecting the right cases from the outset. Most client intake processes gather basic information about a client and their matter, but you need to do more than run a basic conflicts check and assess the facts to determine whether you should take a matter.
To identify matters that have the highest profit potential, you need to understand the types of cases that generally have lower expenses and generate the most successful outcomes. Profitability reporting data can show you historically what types of matters have been the costliest in terms of outlay, led to fewer collections, required higher write-offs, and more.
Law firms should regularly evaluate matter performance to identify areas of improvement and what cases to find to keep profitability high. Conduct post-matter reviews to assess the financial performance of each case, analyze the effectiveness of the legal strategies employed, and identify any cost overruns or inefficiencies. This feedback loop allows the firm to make data-driven decisions that will enhance future matter profitability.
The key is to remember that improving law firm profitability at the matter level requires firms to take a deeper dive than just billable hours and billing rate. Firms should run profitability reports to get greater insights into their expenses by matter and their client pay timelines so they can answer several questions:
Profitability reporting can highlight areas where there may be problems in workflows in your law firm that are inhibiting profitability, such as an attorney’s failure to enter all time worked or write off too many tasks. To understand the true cost of a case, attorneys need to understand all the time they spend on a matter, regardless of whether it is billable, and any time reductions.
As for expenses, law firms need to track both hard and soft costs. Hard costs are any costs paid on a client’s behalf. Soft costs are overhead costs, such as office leases, copying, mailing, deliveries, and the like.
Depending on what the profitability reports show, it may make sense to change how your firm bills for certain matters. In some cases, a flat fee model may not work well, and you may need to switch to an hourly rate or to a percentage of the recovery on a case. Or, if clients are not paying their bills on time, you may need to set up a payment schedule or plan. If nonbillable hours or written-down hours seem high, you should talk to the attorney responsible for the matter about why and figure out a strategy that reduces those costs in the future.
If you aren’t hitting the 50 percent profitability target at your law firm, you may be wondering which matters are really contributing to your bottom line. To get the answers you need, look to our latest tool: Profitability Reporting. With Centerbase Profitability Reporting, you can go beyond your gut and get clear, actionable insights into which matters are the most profitable and which matters to avoid, so you can seize the right opportunities for law firm growth.
Are you ready to take your matter profitability to the next level? Contact us to sign up for a demo of the Centerbase platform and our Profitability Reporting tool today.
Written by Carol Patterson
All law firms collect and study data about their bottom line. If they’re in the red, they know they need to figure out what’s holding them back. But if they’re in the black, they may not dig deeper to understand what’s working and what’s not. After all, a profitable firm is a healthy firm, right?
That’s not always the case. If your law firm has multiple offices or is practicing in several different areas of law, it might be that one location or practice is propping up another. Or it might be that a potentially profitable practice is located in an area with too few high-paying clients or with a high tax rate.
Aren’t these details you’d want to know as a law firm leader? Absolutely! And you can by using Profitability Reporting tools. Let’s take a look at some scenarios where profitability data can help you make smart, strategic decisions that will move your law firm’s profitability forward.
Our [fill in the blank] practice group or law firm location is busy, but it’s not turning a consistent profit. How can we figure out why their profitability is so low?
One reason is that you might have situated a practice in the wrong location. Let’s say you’ve got a divorce and custody practice located in a big city, where there’s lots of competition and a high tax rate to boot. You’re going to have to keep your prices lower to compete for business, and then the government is going to cut into those fees even more.
You can use your profitability data to identify underperforming locations or practice groups and take appropriate action, such as closing or merging offices or practices, to optimize profitability. With this data in hand, you can model different scenarios, including adjusting your billable rates or flat fees to accommodate a higher tax rate and take on fewer clients. Or you may need to move a practice to a satellite office outside the city and use remote tools to work with clients in the city to improve your practice group profitability. Alternatively, you might find an opportunity to acquire another law firm in that area and then focus your resources on other, more profitable practice areas.
Some of my lawyers work in multiple offices. How can I see where they’re working most profitably?
If you have a profitable attorney splitting their time between a Connecticut office and a New York office, it can be hard to tell where they’re generating the greatest profits unless you look at their results by location. The key is to look at the location where the work is actually happening.
Profitability Reporting can help you isolate where your attorneys’ profit margins are the highest, so you can sift through the details about their billed, written-off, and collected fees and their costs to drill down to the details that matter.
Our attorneys want us to spend more dollars on advertising, but I’m not sure we’re getting our bang for the buck. How can I tell what marketing strategies are working?
If your partners are blowing through their marketing budget and their profitability numbers aren’t soaring, you need to figure out why. One way to sort out what’s working and what isn’t is to run a report on profitability by resource.
Let’s say a lawyer wants to invest in advertising on a particular radio show and claims that they’re bringing in new clients based on their ads. A law firm administrator can dig into the numbers to determine the impact of that spend on actual client revenue. If the clients are coming in but not bringing the dollars with them, it makes sense to invest those marketing dollars in other channels that will lead to more lucrative business.
Some of our practice areas have razor-thin profit margins. How can I improve the profitability of these practice areas?
To accurately assess profitability, law firms need to allocate both revenue and costs correctly. This involves allocating direct costs, such as salaries and expenses directly related to specific locations or practice areas, as well as indirect costs, such as overhead expenses and shared resources.
Some of these costs may include write-offs too. Take, for example, insurance defense practices. Often, the profit margins in these practices are razor thin, given competition and the rigorous scrutiny that insurance companies apply to their bills. If you bill for the wrong thing, their billing software algorithms will identify problematic entries and send the invoice back to you, further delaying payment and shaving your profit margin even thinner.
While it’s good to offer some services pro bono, you don’t want to pay businesses to be your clients. To ensure you’re focusing your attention on profitable clients, you can look for cost savings opportunities. You can also study how much each practice area is writing off or not collecting and use it to determine whether you need to adjust your rates, change how you bill for your work, or make different decisions about who your firm takes on as clients.
Find new avenues to law firm productivity with Centerbase’s Profitability Reporting
Partners and firm administrators have a new tool in their arsenal for measuring their law firm profits: Profitability Reporting. The latest addition to our software portfolio empowers leaders to make smarter decisions about resource allocation, marketing, and more using profitability at the practice group and office location level (as well as by timekeeper). Law firms can also focus their attention on markets and practices with the greatest potential for growth, client acquisition, and revenue generation.
Are you ready to take your location and practice area profitability to the next level? Sign up for a demo of the Centerbase platform and our Profitability Reporting tool today.
Written by Carol Patterson
If you’re running a small or midsize law firm, you’re probably juggling a lot of things, trying to maintain your law practice while also managing the business of your law firm. You may not always have your finger on the pulse of the metrics that matter, yet you probably do take a quick glance at your firm’s overall revenue and your timekeepers’ billable hours. So far, your firm isn’t in the red, and your partners seem to be churning out work. But these two statistics, in isolation, aren’t a meaningful gauge of your firm’s overall performance.
Say, for example, that you have an attorney who is bringing in a ton of revenue. However, when you take a closer look at the numbers, you discover that his expenses are incredibly high, and he isn’t billing enough to cover the costs of his practice.
You might also have brought in a lateral with a huge book of business — and a huge salary to boot. But while his billables are high, there are too many write-offs to cover his monthly paycheck.
Or perhaps your star rainmaker has landed a million-dollar client. But the expenses of working for this client are sucking your firm dry to the point that you’re actually paying this client to be on your roster. You’re running a law firm, not a charity.
How can you figure out that these problems exist if you don’t look at profitability by timekeeper? You can’t.
As you can see, it takes more than managing the bottom line to run a successful law firm. And a firm’s success depends on the success of every timekeeper. That’s why it’s so important to monitor profitability per attorney or timekeeper. That’s where Profitability Reporting comes in. Here are just some of the pressing profitability questions that a good tool can help you answer.
There’s a tremendous difference between being a top biller and being profitable. If an attorney is burning the midnight oil every night churning out briefs or contracts, they may not be as productive as they should be. Clients can’t be billed for inefficient work, so some of these timekeepers are having their hours written off.
Your law firm’s goal should be a 50% profit margin. That means you should set the same profitability goal — 50% — for each timekeeper too. Profitability Reporting can show you the complete picture of how write-offs are hurting your profits.
Profitability Reporting can also help you assess the profit margins for each timekeeper by comparing their billed, written off, and collected fees to their associated costs, including overhead expenses and direct costs. If timekeepers aren’t billing enough to cover their keep — their overhead including their salary — something needs to change.
Profitability Reporting can give you the insights you need to have a coaching conversation with attorneys who aren’t logging enough hours so you can help them find ways, such as automation, to make their work more efficient; encourage them to spend less time on nonbillable matters; or balance the workload so everyone has a more equal load. You may also notice an opportunity to help lawyers struggling to meet their billable quota with tools that make it easier for them to capture every billable minute. If all else fails, you may need to adjust their billing rate, encourage them to manage their costs more effectively, or even change their salary to match their profit margin.
It may be that your lawyers are doing lower-value work or work for clients where the profit margin is razor thin. Profitability Reporting helps you evaluate the value of different practice areas and types of work that your lawyers handle. The right tool pinpoints trends and shows which areas, matters, and tasks generate higher billable hours and profit margins. This analysis can help guide resource allocation and encourage your timekeepers to search for clients and focus on the work that delivers the biggest payoff for their effort.
Timekeeper data can also show you whether you have set the appropriate pricing and fee structures for the work. By analyzing the relationship between billing rates, fee structures, and realization rates, you can identify opportunities to adjust billing rates, introduce alternative fee arrangements, or negotiate better terms with clients to improve your overall profitability.
Finally, the data in a Profitability Reporting tool can help you make tough choices. It may be that a lawyer on your team is just not able to generate the profit necessary to justify keeping them in the firm. If that is the case, it’s better to cut them loose so that your firm can focus on recruiting timekeepers capable of keeping your firm in the black.
Typically, profitability is calculated using hours worked. But if your timekeepers aren’t counting their hours because you’re billing clients on a flat-fee basis, then you can’t make that calculation. That doesn’t mean all is lost.
New Profitability Reporting modules are being built n that will help you calculate profitability even when you’re using a flat rate for your services.
Our new Profitability Reporting tool makes it easy for law firm leaders to track revenue, expenses, and profits at the timekeeper level. With this data in hand, you can determine how each timekeeper in your practice can improve and give them targeted advice to strengthen their performance. And, when each timekeeper improves, you increase your firm’s overall profitability.
The Centerbase platform gives you all the tools you need to turn your law firm into a profit-generating machine. To learn more about our Profitability Reporting tool, reach out for a free demo today.
Written by Carol Patterson
For five quarters in a row, law firm profitability has fallen, according to the 2023 Report on the State of the Legal Market, a study conducted by the Thomson Reuters Institute and Georgetown. (Data are based on reported results from 170 US-based law firms, including 46 AmLaw 100 firms, 47 AmLaw 200 firms, and 77 midsize law firms.) Profits per equity partner are down for the first time since 2009. Client payments and realization rates are down too.
Demand has also dropped for everyone except midsize firms, where clients are flocking because they want quality legal services without the major firm price tag.
So, how can small and medium-sized law firms capitalize on this demand and optimize their profitability? That’s what we’ll cover in this article.
Law firms should focus on profitability for a number of reasons. First, being profitable ensures that the firm can sustain its operations and provide quality legal services to clients. Having a profit allows firms to comfortably cover their operating expenses, such as rent, salaries, technology, research materials, and marketing, and establish contingency funds and reserves for unexpected expenses or downturns in business, such as a global pandemic, potential lawsuit, or market uncertainties.
It’s also important for law firms to have sufficient funds to invest in resources and infrastructure to stay competitive and deliver efficient services. To stay ahead of the curve, firms should make investments in technology, legal research tools, document management systems, communication tools and client portals, matter management systems, and training. The more profitable a firm is, the better it can enhance its capabilities and client service through investments like these. And the more investments a firm makes, the better able it is to attract, engage, and retain attorneys and staff members — not to mention pay them competitively.
Finally, profitable law firms are positioned to pursue growth opportunities and expand their practice areas or geographic reach. They can invest in client and business development strategies that attract new clients and increase their market share.
The baseline profitability goal for a law firm is 50 percent. If your firm isn’t hitting that mark, it may be because your expenses are too high or you aren’t earning enough revenue. Or maybe you are too heavily staffed, which can drain your law firm’s financial resources. The key is to figure out what is causing the problem.
Many firms look at their profit and loss statements, but these statements don’t tell you the whole story. The typical law firm P&L report isn’t granular enough to help you determine the true source of revenue and expenses. You may have a timekeeper who brings in a lot of revenue but not enough to cover their incredibly high expenses, for example. Or you may have a million-dollar client, but what you shell out to keep that client and maintain their business is so high that you’re essentially paying the client to remain on your roster. But you likely can’t tell that from your current financials.
The problem stems from too many law firms not running their firms like a business. Law firms that lack accountants don’t fully understand the concepts of what makes firms profitable. If your firm’s office manager or paralegals are managing your accounting, they are certainly capable of handling billing, checks, and cash receipts, but they won’t be able to focus on your law firm’s bigger financial picture.
The bottom line is that if you’re focusing just on revenue and expenses, you’re missing important details. Many law firms overreact when expenses look high and look for ways to make cuts. But if you’re focused on reducing spending, you’re also contracting your business, and the revenue will follow, as will employee morale and output.
And if you aren’t yet using law firm accounting software, you’re just planning your law firm’s future based on guesswork. That wouldn’t pass muster for your clients, and it shouldn’t pass muster for your shareholders, either.
The key is to study profitability by timekeeper. This way, you can discern which attorneys are in the clear and which need help. To get the full picture of expenses and profits for every timekeeper, you need to monitor direct expenses, indirect expenses, plus overhead. But most law firm billing platforms can’t deliver this information without running reports from hundreds of general ledger accounts.
Centerbase is here to fill the gap. Our new Profitability Reporting tool delivers the data that your partners need to drive smarter business decisions. Our tool goes beyond showing more than just data on what’s been billed and collected. Our platform helps you track revenue, expenses, and profit margins at the firm, practice group, and individual levels, so you can optimize your firm’s profitability and improve its financial performance. You can also analyze key metrics such as billable hours and realization rates so you can set profitable billing rates and pricing and create accurate budgets. With our platform, you can determine which timekeepers are most valuable to your firm, what practice areas to expand, and which matters are contributing to — and hurting — your bottom line.
Centerbase puts real-time accounting tools in the hands of everyone in your law firm. It’s like having your own personal accountant on call. Contact us for a free demo and learn how our profitability reporting can help you kick-start your law firm’s growth.
Compliance is a priority for law firms. And legal software can be a key tool in helping you meet your firm’s compliance requirements.
In this article, we’ll cover major compliance issues that law firms need to monitor and solutions that can reduce your risks.
A primary compliance concern for law firms is staying on top of compliance related to both data and processes: for example, storing firm and client data safely in the cloud, managing online client portals, processing online payments, handling trust accounting issues, and following ethical requirements relating to online advertising and marketing.
In this section, we’ll go over a few major buckets of compliance risks in the digital world that your firm should recognize and address.
When it comes to storing data, security is the top compliance priority. Law firms must make “reasonable efforts” under ABA Model Rule of Professional Conduct 1.6 to prevent the disclosure of client-related information. That means law firms must understand what client data they store, where they are storing it, and what the potential entry points for data loss and disclosure are. Additional compliance requirements vary depending on the size and type of law that your firm practices, but it’s best practice to review applicable requirements and make sure that your firm’s cloud infrastructure has the robust protections necessary to safeguard your clients’ data.
Choosing a reputable provider of cloud-based legal platforms is the first step in ensuring compliance. The provider should have a proven track record and, ideally, have suffered zero data breaches in the past. Make sure that it offers robust security features like encryption and access control, such as password policies, two-factor authentication, and role-based permissions.
Much like the cloud, client portals require firms to pay special attention to how they secure client information. Your law firm should implement strong access controls, such as two-factor authentication and secure file transfer protocols, to prevent unauthorized access to client data. Law firms that use client portals also must comply with the ABA Model Rules of Professional Conduct, which include requirements for maintaining client confidentiality (Rule 1.6), establishing competence (including with technology) (Rule 1.1), and keeping clients informed of matters (Rule 1.4).
Processing client payments online
There are a host of considerations when deciding how to accept online payments from your clients. Clients overwhelmingly prefer to have the ability to pay online and to pay with credit cards. Turning to legal software to do the behind-the-scenes work of processing online payments for your law firm is your best bet.
The right legal technology platform can ensure that all online payments accepted follow the ABA Model Rules, Interest on Lawyers’ Trust Accounts (IOLTA) guidelines, and Payment Card Industry Data Security Standards (PCI DSS). The right legal payment and accounting software will ensure that your legal team does not commingle client trust account funds with the funds they use for operations.
Following rules for online law firm advertising
Law firm websites must meet certain ethical requirements set forth by their state bars. For example, websites shouldn’t advertise a lawyer as an “expert” or as “specialized” in a particular practice area unless they hold a specific qualification permitted by their state. They should also not hold themselves out to be the “best” lawyer to handle a type of matter. Attorneys may also need to include a disclaimer noting that the information on their website should not be considered legal advice. Lawyers should check their state bar’s requirements to ensure compliance. In some states, the bar may require or permit the submission of the law firm’s website content for ethical review.
Additionally, prospective clients want to see that your law firm is capable of handling matters like theirs. One of the best ways to highlight your expertise is through the words of satisfied clients. But there are limits to what you can share online — and you also need to prepare for how to handle a negative review. ABA Model Rule 7.1 requires that all communications about a lawyer and their services must be true and not misleading. Marketing statements, such as testimonials, could be misleading if they set an expectation that a lawyer can obtain the same results as another client without reference to the specific factual and legal circumstances of each client’s case.
Finally, law firms should make sure that their websites meet the requirements of the Americans with Disabilities Act. That means your site’s design and visual and audio content need to be accessible to everyone, including people with disabilities.
A digital marketing company that focuses on helping law firms can help identify and avoid online marketing pitfalls and help you comply with your state bar’s requirements.
True compliance starts with your people. Your law firm should have a data protection plan (especially when it comes to client data) that outlines steps and safety procedures. It should include policies on who can access client data, how and when they can access it, and how data is retained and backed up. Also, make sure that your attorneys and staff are trained on how to handle sensitive data and best practices for compliance.
Legal software plays a critical role in helping law firms remain compliant with laws and regulations. As touched on throughout this article, the laws related to compliance are plentiful, and navigating those waters yourself is unnecessarily risky.
With advanced legal software, your firm can ensure data security through the cloud, keep client information confidential, and process online payments both quickly and while fulfilling your legal and ethical requirements. By leveraging legal software, your firm will streamline compliance processes, reduce the risk of data breaches and other violations, and ultimately protect your law firm’s reputation.
