How to quantify the return on investment to your law firm clients
For accounting pros working with law firms, you want to be more than a commodity. You want to be a trusted advisor – someone the law firm values not just for your bookkeeping and accounting skills, but also for your insight into the optimization of their finances. That’s the kind of value that cannot be commoditized.
How can you quantify your return on investment (ROI) to the law firm? This can be difficult to pinpoint without knowing how a law firm bills for its services, and what aspect of its financial management presents the most urgent need for optimizing.
To help law firms determine what kind of ROI they can expect by enlisting your services, you can focus on the following four smart accounting metrics and practices to increase a law firm’s profitability – and your ROI.
As you know from working with law firms, each firm is highly specific, but the following four areas of focus exemplify some of the most visible and immediate positive impacts on a firm’s finances.
Focus one: accounts receivable (AR)
- The client engagement letter: Sets the rules upfront on how you will do business with your clients. Retainers, fees, and payment options are clearly outlined, and the client understands how, where, and when they need to pay.
- Mitigation of AR by leveraging retainers into your firm: Whether using an evergreen retainer or modeling the retainer as a requirement in your engagement letter, your process shows the law firm how to best increase payments and decrease chasing payments. Understanding real-time data for work in progress (WIP) reporting and illustrating the retainer to WIP ratio at the client or matter level will also make it clear to the client where they need to focus.
- Reduction of bad debt write-offs and chasing money with electronic payments: This applies to credit cards and the less expensive ACH as part of the invoicing toolset. Despite the fees, asking a client to pay electronically will reduce the AR and bad debt, and positively impact cash flow. Moreover, it eliminates hours that an attorney or administrator spends asking clients for payment.
- Real-time account visibility and automation offers at-a-glance status of key financial metrics: Attorneys and staff can easily track AR-specific matters, an attorney’s WIP-to-trust ratio, and aging, among other areas. Trust accounting is leveraged as a function of retainers in the attorney’s workflow, so the entire lifecycle of the trust account should be easily accessed and understood.
Focus two: staff utilization and efficiency
- Understanding team members’ productivity and efficacy: As another crucial piece of information for the law firm, you can help managing partners answer the questions, “Do we have the right staff, are they in the right seats, and are they in a role optimized to their skill?” Examining the underlying data in these reports provides clarity into which timekeepers are your most productive and those who just invoice superfluous hours.
- Write-downs are shown as percentages and dollar amounts: If this is the case, managing partners can understand where attorneys are excelling or struggling with certain practice areas, specific clients, or tasks.
Focus three: reduce firm overhead
- Based on the account management and visibility mentioned above, attorneys are able to manage invoicing and collections themselves, and shed the cost of additional administrative staff or repurpose that staff to more productive tasks.
- Automating compensation tracking saves administrative time and reduces mistake-prone, highly manual workflows. A transparent, automated workflow gives the law practice faith in the setup of compensation and distribution.
Focus four: profit and loss
- Leveraging advanced features in QuickBooks® Online can present data-driven insights into the actual profit and loss (P&L) of particular attorneys’ practices and firm P&L. The focus is on profitability, not revenue.
- Advanced custom form fields mean data can be examined against firm-defined metrics and calculated against factors, such as overhead for a comprehensive understanding that extends beyond just revenue.
- This reporting can be done monthly and quarterly, instead of just doing it at the end of the year.
When law firms hand over not just the bookkeeping and accounting to their accounting professionals, but also the mission of how to become a better run business, the accounting professional won’t have to worry about being a commodity. Pitching yourself this way to new clients becomes an eye-opening experience for the law firm.