Law Practice Management Asked and Answered Blog

Category: Financial Management

« Earlier

Jul 29, 2026

Law Firm Operations Management Exception Report

Question:

I am the owner of a five-lawyer estate planning/administration firm in Fresno, California. The other four lawyers are associates in the firm with estate planning and administration experience ranging from one year to ten years. We have three paralegals, a office manager/bookkeeper, and a receptionist. We are using state of the art cloud-based practice management software for billing, accounting, calendaring, document storage and management, and lead tracking. We use MS 365 products for e-mail and word processing. We use specialized cloud-based software for estate planning document drafting and preparation. While most of our estate planning work is billed on a flat fee basis we keep timesheets on all matters – flat fee and time bill matters.

As the firm owner and manager, I am finding it difficult to manage the store. Getting the attorneys to stay focused and attain their billing/collection targets is a major challenge. Recently we have had situations such as the following:

  1. Estate administration matters that have not been worked on for months resulting in client complaints and retainers tied up in the IOLTA account where work has not been done and can’t be billed.
  2. Estate planning matters where clients got tired of waiting three months for their estate plans and fired the firm, requested refunds, and took their work to competing law firms.
  3. Lawyers that are way short of their production targets. Some are not even billing/collecting $300,000 a year and are being paid salaries of $150,000 plus a year.

I receive more reports from our bookkeeper than I even have time to read – alone understand what they mean. I need better tools to stay on top of things. Any ideas that you may have would be appreciated.

Response: 

I understand your frustration. Years ago, when computer software was first being implemented in law firms a managing partner told me – “I am tired of receiving reams of paper every time I want to know the status of something. I want to be able to push one button on the computer, have the information that I need in one minute, and printed on one piece of paper.”

Since those days there has been improvement but getting the information you need and when you need it can still be frustrating.

Many of the leading law firm software developers are beginning to incorporate dashboards into their software and this is providing some assistance. However, these dashboards often do not provide the precise information or reporting flexibility that is needed.

What is drastically needed is a law firm operations management exception report that presents you with red flags and identifies areas in the firm that require leadership attention. Rather than reviewing pages and pages of detailed reports and every operational metric, an exception report focuses on exceptions—areas where performance is significantly above or below target, deadlines have been missed, risks have emerged, or corrective action is needed. For example:

  1. List of client matters that have not been touched (worked on) for x days per timesheets, calendar entries, etc.
  2. List of lawyers that billable hours, fee collections, are below target.

The goal of management exception reporting is to enable owners and managing partners to manage by exception, and spend their time on issues that require decisions rather than reviewing detailed and lengthy operating reports.

I suggest the following:

  1. Ensure that you are using all of the capabilities of your practice management software.
  2. Fully deploy your dashboards if your software supports them. Some systems require a higher-tier subscription to access dashboards or full customization. Check with your software provider.
  3. Ask your software provider if, for a fee, they will provide you with a customized report.

Recently one of our clients was able to have a custom report designed for them that allowed them to query the system and have exception report of matters no touched – no work done for a specified number of days, etc. A fee was charged for the development of this report.

Software is getting better with dashboards, etc. but often custom reports are still required.

Talk with your software vendor.

Click here for our blog on financial management

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

May 13, 2026

Estate Planning Firm – Flat Fee Effective Rates

Question:

I am the managing owner of a three lawyer estate planning and estate administration firm in Nashville, Tennessee. There are three paralegals, a receptionist, a bookkeeper, two legal assistants, and a firm manager working at the firm. Our estate planning has for many years been billed on a flat rate basis. Our effective rates have been and continue to be much lower than our time bill rates and this is having a very negative effect on firm profitability. Should we consider billing estate planning matters on a time bill basis? I would appreciate your thoughts and suggestions.

Response:

I am currently working with quite a few estate planning/estate administration/elder law firms that have high net worth clients. The majority of these firms use “time bill” billing arrangements. Firms that represent mom and pop smaller net worth clients are using flat fee arrangements for estate planning and asset protection matters and “time bill” arrangements for estate administration and other matters.

Few firms that are using flat fee arrangements are realizing effective billing rates even close to their standard “time bill” rates. In some cases I have found effective rates $100 to $150 per hour less than their standard “time bill” rates for attorneys and paralegals. In some cases the problem is not working effectively or efficiently. In other cases the flat fee price has not been properly set or limits placed on the work that will be done for the flat fee – for example – number or document rewrites, etc.

I believe that more than ever clients are wanting the budgetary certainty that flat fees provide.  I think that a flat fee pricing strategy is a good strategy but the scope of work and proper price point must be properly established. A couple of suggestions:

  1. Do some basic market research – secret shopping – and obtain the best information that you can on competitor pricing.
  2. Review time charges on typical estate planning matters and get a handle on the amount of time that it typically takes – by each office professional – for matters of varying levels of complexity. Include time that is not obvious for administration of the matter, calendaring, communications with client, etc.
  3. Based on these time estimates determine flat fees using the desired standard hourly rate and then add a risk premium of 10% – 20%. If a matters typically takes 10 hours and your desired rate is $200 per hour – set the flat rate fee at $2200.00 – $2400.00.
  4. Incorporate into your engagement letters, fee agreements, etc. Include a provision that allows for time billing when there are extra re-drafts, unforeseen events caused by the client, etc. specified beyond the limits specified for the flat fee amount.
  5. Get at least 1/2 of the fee before commencing work and the other half before delivering and executing the final documents.
  6. Keep time sheets on the matters for time expended.
  7. Review at least quarterly effective rates realized on completed flat rate matters.
  8. If effective rates are below your target rate review the time detail and determine where the problem lies.
  9. Make changes and adjustments if needed.

Recently an estate planning firm client of ours asked their attorneys and paralegals how much time is took for a typical estate plan (trust). They advised as follows:

The problems with the above time estimate was that it did not provide time spend writing up consultation notes and posting to the system, communication with clients, modifications and changes to documents, calendaring, notes to the file, and all the other administrative matters pertaining to the matter. While the initial analysis showed that the effective rate per hour far exceeded the time bill rate – such was not the case when the actual total time expended on the matter was considered.

I believe that properly implemented and managed flat fees can be a worthwhile strategy.

Click here for our blog on financial management

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

Apr 30, 2020

How are Law Firm’s Doing During COVID-19

Question: 

Our firm is a four lawyer estate planning firm in Bakersfield, California. As you know our state has been under stay at home orders for sometime. We have everyone except our receptionist and one attorney working remotely from their homes. We are doing much better than I expected. In fact we are getting new clients at close to our usual number per month and our fee collections have actually exceeded our normal monthly fee collections. How are other firms doing?

Response: 

It depends on practice area and firm size. Many of the very large firms are facing dramatic work slowdowns and are laying off attorneys and staff and or cutting partner, associate, and staff compensation. However, many small consumer facing practices such as estate planning/probate, general practice, family law, and personal injury advise us that they are doing well in terms of fee collections and new matter signups. Intellectual property firms also advise us that they are holding their own.

The biggest issues for many of these small firms have been:

Small firms that are “paperless” and are using cloud-based billing and practice management systems are having the easiest time of working remotely.

Don’t get too comfortable based on March and April’s numbers. I believe that May or June will provide you with a better glimpse of the future both in terms of new business and fee collections. There could have been initial client demand based on the need for people to get some things done in preparation for the virus lock-down and you could see in May or June client demand dropping off. Also keep in mind that some of your fee collections were based upon accounts receivable and prior unbilled work in process. In addition, some of the billable work for the past month or so was probably performed on matters or cases that you already had in the pipeline.

May or June may give us all a better picture.

Good luck!

Click here for our blog on COVID-19

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

Dec 11, 2019

Law Firm Financial Management – Financial Red Flags

Question: 

Our firm is a twelve lawyer firm in Chicago and our practice is a business litigation firm. We have eight partners in the firm and we are managed by a three-member management committee that was just formed this year. I am a member of the committee and I am responsible for the general financial oversight of the firm. I am trying to get a handle on law firm financial metrics and especially what are the financial warning signs that I should be aware. If you have an outline or list that you would be willing to share we would appreciate it.

Response: 

Here is a short list of what I call financial red flags that you might find helpful:

Click here for our financial management topic blog

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

Oct 31, 2019

Law Firm Financial Management – Creating a Budget the First Time

Question:

I am the firm administrator for an eight attorney firm in Nashville, Tennessee. I started this position approximately six weeks ago. While I have worked in the legal field for many years as a paralegal, this is my first position as a legal administrator. I have done bookkeeping for several firms over the years. The firm has never had a budget and has asked me to prepare one for the upcoming year. I am not sure where or how to start. Any help or ideas that you may have would be appreciated.

Response: 

You will want to consider two budgets. The first will be an operating budget which is a revenue and expense budget that will contain the income and expense accounts that are listed in a profit and loss or income statement. The second will be a capital budget which will be a budget for capital expenditures that are typically listed as assets on a balance sheet such as furniture and equipment.

Here is a process that you might want to use.

Operating Budget 

  1. Print out a general ledger chart of accounts list and profit and loss statement
  2. Using the chart of accounts list (income and expense accounts only) setup an Excel spreadsheet with the following columns.
    1. Account Number
    2. Account Name
    3. Prior year actual year to date
    4. Proposed upcoming year budget
    5. Final upcoming year budget
    6. Planning notes
  3. Account number and account name columns. List all of the accounts from the profit and loss statement in the account number and account name columns.
  4. Prior year actual year to date column. Enter figures for the prior year in the prior year actual year to date column for revenue/income and expenses.
  5. Proposed upcoming year budget. Start with revenue. However, in the budget worksheet have a revenue account for each revenue producer (attorney and paralegal) – not necessarily in the general ledger but on your budget worksheet and project their billable hours/collections expected. If you are a contingency fee practice this will require an analysis of the cases in process and estimated case outcomes and timing. This is a good place to get commitment and establish realistic revenue goals for the year. You may want to have a discussion concerning this in a firm meeting. I believe that the revenue goals are the most important part of the budget and where most firms need to focus.
  6. Proposed upcoming year budget. Enter proposed expenses. You can start by examining last year’s actual figures. Give consideration to any growth (typically lawyer and staff headcount) for the upcoming year and any anticipated changes in expenses. Develop a payroll spreadsheet listing each attorney and staff members receiving W-2 pages, their compensation last year, a anticipated salary and bonus for the upcoming year, with columns for calculation of appropriate payroll taxes. Anticipate new hires during the year. Then enter in to the proposed upcoming year account columns.
  7. Planning notes. As you develop the budget note your assumptions, etc. in the planning notes section.
  8. Submit for discussion and approval. Submit the budget worksheet to your managing partner, executive committee, partnership, etc. for discussion and approval.
  9. Enter approved budget in the Final Upcoming Year Budget Column. 
  10. Enter approved budget in to the General Ledger System, QuickBooks, etc. You can now enter the approved budget into your accounting system and simply include budget on your profit or loss statement for systems that provide this function or in QuickBooks print a Budget v Actual Report with your monthly reports. When you enter the approved budget into your system you can take the quick and dirty way and enter the annual amount for each account and have the system allocate the budget equally to each month or you can allocate to each month when you anticipate the expense – for example an insurance premium for the entire year might be allocated to the specific month when the policy will come up for renewal rather than equally to each month.

Capital Budget

This is often just a simple list in a spreadsheet and manually tracked. Many of the general ledger systems only allow budgets for income and expense accounts.

Good luck with your project.

Click here for our financial management topic blog

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

 

Jul 11, 2019

Law Firm Operating Metrics and Statistics

Question:

I am the newly elected managing partner in our twelve-attorney firm in Chicago, Illinois. Our firm is a business transaction firm that was started by the present four partners ten years ago. While we have an office manager that does the bookkeeping, prior to this year all four partners as a group managed the firm. This year the firm decided to create the managing partner position. Since this is new to me I am trying to learn all that I can about law firm management. My first priority is to help the firm improve profitability and I would like to know what the key operating metrics and statistics are that I should be monitoring. You suggestions will be appreciated.

Response:

Law firm operating statistics represent an important management tool. They highlight superior performances and they flag below average performances. They provide law firm management with the key information needed to manage the firm’s business. In addition to measures such as firm fee revenue collections, firm profit/net income, profit per equity owner, billable hours, fee revenue collected per attorney, operating statistics found in law firm management reports typically include information on:

The first three statistics represent factors that relate to earning the firm’s revenue. Responsibility for earning the firm’s revenue rests with the firm’s partners. Consequently, it is important to assign this responsibility to specific partners – typically the responsible/billing attorney.

In recognition of the assigned responsible attorney concept, many firms choose to present revenue-related operating statistics reports in a format that focuses on each partner’s responsibility. This gives the management group the ability to access each partner’s “business” performance.

Click here for our financial management topic blog

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

May 29, 2019

Associate Attorney Productivity When Client Work is Slow

Question: 

Our firm is a sixteen attorney municipal law firm in Detroit with six partners and ten associates. Like most firms that do municipal work we must deal with lower billing rates than other firms charge. The volume of our work can also fluctuate at times. All of our work is billed by the hour and billable hours is our most important key performance indicator. Our associates have a billable hour expectation of 1800 annual billable hours and only two of our associates are even close to reaching 1800 hours. Some are not even reaching 1200 hours. Some of the associates have the excuse that they don’t have enough work. We do not believe that this is the case. I would like to hear your thoughts on this matter.

Response: 

This seems to be a common issue. Failure to attain billable hour goals can be caused by any one or a combination of the following:

  1. Work ethic and simply not working enough “worked hours”
  2. Lack of work
  3. Poor time management habits
  4. Poor time keeping/recording habits

I would start by observing the number of worked hours they are putting in. Are the putting in the hours? Observe as well as review their time reports – billable and non-billable time. If you don’t track non-billable time start doing so. Then review and discuss with them their time management and time keeping/recording habits. Questions to ask include:

Review and discuss workload levels of each associate and determine if lack of work is an issue.

I have found that often the cause of the problem is a combination of some or all four of the above listed causes. Lack of work is often one of the causes. My question is then:

The firm should have an established protocol for assignment of work to associates and to whom the associate advises that he or she needs more work. When billable work is slow and not available the associate should be assigned non-billable firm or business development projects  such as developing document templates, writing articles, etc.

If the problem is work ethic appropriate consequences and disciplinary measures may be required.

If the problem is time management and time keeping training and habit building will be required.

Click here for our financial management topic blog

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

 

 

Apr 03, 2019

Valuing a Personal Injury Law Practice

Question:

I am the owner of a three attorney personal injury practice in Columbia, South Carolina and I am contemplating retiring in seven years. I have an associate on board that I would like to sell my practice over the seven years. How do I go about valuing my practice and determining how much I should ask for?

Response: 

A few of the various methods used solely or in combination with other methods for valuing a law firm include:

  1. Asset Based – ignores the importance of a firm’s earnings and cash flow (Goodwill Value)
    1. Book value – adjusted to accrual-based financials
    2. Replacement cost
    3. Appraised value
    4. Market value
  2. Comparable firm transactions
  3. Discounted cash flow – based on projected future financial performance of the firm.
  4. Rule of thumb using multiples
    1. Multiple of gross revenue
    2. Multiple of net profit or earnings
    3. Multiple of EBITDA (Earnings before interest, income tax, depreciation, and amortization. (EBITDA is a measure of a firm’s operating performance)
    4. Multiple of SDE – seller discretionary earnings after owner compensation adjustments (expensing appropriate salary)
  5. Rule of thumb variables
    1. How much repeat business is expected
    2. Number and type of clients
    3. The transfer-ability of client and referral source relationships
    4. Dependence on only a few large clients
    5. Whether the firm has been institutionalized or is a personal practice and uniquely the firm owner
    6. Other attorneys and staff
    7. Firm infrastructure and systems
    8. Historical reputation of the firm
    9. Contingency fee practices

Personal injury firms are difficult to value due to the variability in cash flows that are often the case with many firms.  Some personal injury firms have relatively predictable cash flows and others have very large swings. When this is the case the typical solution is cash-based book value plus a percentage of case fees as they are concluded with a percentage of completion factor applied.

Click here for our blog on practice sale

Click here for our blog on succession

Click here for out articles on various management topics

John W. Olmstead, MBA, Ph.D, CMC

Mar 06, 2019

Law Firm Financial Management – Managing the Firm’s Inventory

Question: 

Our firm is a eighteen attorney firm in Portland, Oregon and I am the recently hired firm administrator. This is my first law firm. My previous employment was with a small manufacturing and distribution company. I have read some articles that discussed the importance of managing inventory in a law practice. Does a law firm even have inventory? I would appreciate your comments.

Response: 

Inventory (or pipeline) management is a term used in the management consulting profession to refer to the process by which you continually evaluate your active opportunities (prospective clients to booked clients) for their balance of QUALITY and QUANTITY. The goal is to continually stay on top of the overall health which is a full pipeline. Pipeline management allows client relationship managers to more accurately forecast fee revenues, better staff and manage client engagements, and close more client business.

I often also refer to Inventory or Pipeline Management in law firms in the context of using financial dashboards by which the individual charged with financial management responsibilities is continuously aware of significant changes in the firm’s Inventory or Pipeline (from prospects to cash):

By comparing these dashboard statistics to a prior month, quarter, or year – you are able to avoid financial surprises down the road.

Law firms do have inventory and that is their unbilled work in process (matters in process) or in the case of a contingency fee firm I usually refer to work in process as cases in process.

How well this inventory is managed – managing what is in front of you rather than what is behind you is a critical component of financial management and has a major impact upon the profitability of the firm. However, this responsibility falls primarily to the attorneys responsible for the matters. However, in your capacity as administrator you can provide the reports and oversight to help keep them on course.

Click here for our financial management topic blog

Click here for our law firm profit improvement blog

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

 

Jan 09, 2019

Law Firm Management – Held Hostage by Office Manager or Bookkeeper

Question: 

I am a partner is a small family law firm in Tucson, Arizona. There are two partners in the firm and two associates. We have an office manager/bookkeeper, a receptionist, and two legal assistants. The office manager was hired one year ago. The other partner is retiring next year and I am purchasing the practice from him. I became a partner last year. I am new to the management side of the practice and have been relying on the office manager who also serves as our bookkeeper. I am at my wits ends with our office manager and I believe that she is not suited for the position. She has no organizational skills, she misses deadlines, vendor bills are not paid on time, and client bills are not sent out accurately and timely. I have counselled her on numerous occasions to no avail. I believe we need to replace her but I am reluctant since no one else here knows what she does or how she does it. A new billing and accounting system was implemented last year and she was the only one trained on the system. What do we do if we terminate her or she quits? We are hostages. I would appreciate any ideas of thoughts that you may have.

Response: 

I understand and appreciate your situation. It sounds like you have not documented your procedures in the form of a firm procedures manual and everything is in the office manager’s head. This makes it difficult for someone to take over her responsibilities if she leaves the firm for whatever reason but not impossible. It will probably be difficult to get her to develop one now as it may signal to her that her time with the firm is short and she may start looking for another position. You may have to just bit the bullet, terminate her, restaff the position, and go from there.  It won’t be fun but you will make it though. You might consider the following:

  1. The office manager probably has handwritten notes, etc. that she has used to roughly document how she does things. Collect these and review these.
  2. Contact your billing and accounting software provider and have them help you will any training needs you have as well as procedural issues. Back in my old life when I did software work with law firms I often was called and assisted firms with such situations.

After you get the position staffed and past the crisis develop a detailed written manual of procedures for the office. Not just the office management side but the client service side – attorneys and paralegals as well.

I believe that it is imperative that owners and partners in a law firm have access to financial information on a timely basis, understand the information, and use the information in a proactive way to manage the practice. I suggest:

  1. The owner, or an appointed partner(s) in larger firms, obtain a basic level of understanding in basic accounting/bookkeeping and law firm financial management.
  2. The owner, or an appointed partner(s) in larger firms, obtain detailed training on the accounting software system(s) along-side the bookkeeper when the system is implemented. In addition to general operation of the software, special training should also be obtained on interpretation and use of the management reports.
  3. Insure that you have accounting controls in place and appropriate segregation of accounting duties.
  4. Outline your expectations and requirements of the office manager/bookkeeper, meet with her/him, and communicate appropriately.

Click here for a bookkeeper listing of duties.

Click here for our financial management topic blog

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

Archives

Categories

    Subscribe to our Blog