High Five: The Basic Financial Reports Your Law Firm Needs

A lot of law firm owners I know don’t look at any sort of financial reports at all when it comes to their business – which is straight up madness.  Frankly, if you don’t look at any other reports, you should be looking at your financial reports.  The good news is that there are some basic one, that are usually available by default in either your case management software and/or your accounting software.  Now this is not intended to be an exhaustive list of the financial reports you need for your law firm, but if you’re not looking at at least these five for starters, you’re essentially flying blind.

Accounts Receivable – This report identifies how much total money is owed to your law firm by clients; this figure can be broken down on a per client basis.

Aged Accounts Receivable – This report identifies accounts receivable within time-based buckets, e.g. – moneys owed for 30, 60 and 90 days or more.  This is important information to have on hand, in part because the longer money is owed to you, the less likely you are to recover it.

Realization Rate – This report identifies how much billable time you write off from a final invoice – whether you’re eliminating time entries entirely or just reducing them.  This is the second phase of leakage for law firm revenue.

Collection Rate – This report identifies the percentage of billed/invoiced time that is actually collected.  For most law firms that utilize hourly billing, this number sits right around 70%.  With value billing or evergreen retainers, however, that average can skyrocket.  This is the final phase of leakage for law firm revenue.

Utilization Rate – This report identifies the portion of the day during which a biller bills.  If someone bills four hours in an eight-hour workday, their utilization rate is 50%. The higher that number gets, the more efficient the biller is, and the more money the firm makes.  This may be the most important metric in law firm management, full stop. But it does require time tracking for administrative tasks.  This is the initial phase of leakage for law firm revenue.

If you’re not already reviewing these metrics, doing so will open up a world of business intelligence for you.

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If you want to talk more about how numbers can help your law firm, reach out today!

The Wyoming State Bar offers free law practice management consulting services through Red Cave Law Firm Consulting.

To request a consult, visit the Wyoming State Bar’s law practice management page, and start running your law firm like a business.

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