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Sep 05, 2017
Law Firm Key Financial Goals/Metrics
Question:
I am a newly elected managing partner of a fourteen lawyer firm in San Diego. While I was elected to this position I feel handicapped since I don’t have a financial background. What metrics/measurements should I be looking at?
Response:
Here are a few metrics that you might want to consider:
- Fees Collected (Firm wide and individual)
- Net Income Collected (Before partner compensation)
- Fees Collected Per Lawyer
- Average Client Production (billable) hours per lawyer (Firm wide and individual)
- Expenses Per Lawyer (Before partner compensation)
- Income Per Partner (Before partner compensation)
- Profit Per Lawyer (Before partner compensation)
- Profit Per Partner (Before partner compensation)
- Profit Margin (Before partner compensation)
- Billing Realization (Firm wide and individual)
- Collection Realization (Firm wide and individual)
- Effective Rate (Firm wide and individual)
- Profit Index – 1.00 or greater
- Client satisfaction – 94% or higher – mean score of 4.5 or higher, etc.
- New client/case signups
- Other new business measures
- Ratio of PB (Prospective Business) conversions
- Dollar Value of Working Capital = Current Cash Based Assets + WIP + AR minus
Current Cash Based Liabilities + Accounts Payable and other Current Liabilities. Reflects the firm’s ability to be operated from day to day. - Current Cash Based Assets + WIP + AR should always exceed Current Liabilities + Accounts Payable.
- Current Ratio = Current Cash Based Assets + WIP + AR minus Current Cash Based Liabilities + Accounts Payable and other Current Liabilities (Ratio should be >1:1 – the higher the better) Desired ratio is 2:1.
- Acid Test Ratio = Cash + Accounts Receivable divided by Current Liabilities + Accounts Payable. (Ratio should not < 1:1) Acceptable ratio is 1:1.
Once firm goals, financial and non-financial are formulated, either run reports that are available from your system or develop special Excel reports than measure goal accomplishment.
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John W. Olmstead, MBA, Ph.D, CMC
Posted at 08:49 PM in Financial Management
Tags: Financial, Firm, Goals, Key, Law, Metrics
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