Year End Collections: Tips for Getting Paid Before Year-end

Collection Box Fund Raising Drive Donation Support Money HelpOctober 2016 (revised from original post) Peggy Gruenke | Originally published in Attorney at Work.

The year end is right around the corner, along with the holiday season. So, what do you really want for a holiday gift? How about getting paid for the work you did during the year and focus on year-end collections.

The holidays can be extra hectic for lawyers with the scramble to get money from clients before year-end and tax planning with your accoutant. Most law firms operate on a calendar year and are run on a cash basis, meaning work isn’t counted as revenue until clients pay. If you are a partner or even an associate, your compensation may be tied to the amount of money your firm collects on the work you billed. If you are a solo, you know all too well your compensation is directly tied to how much you collect on invoices.

Also during these last few months of the year, there’s typically a slowdown in the number of new cases for many practice areas — divorce, bankruptcy, estate planning, real estate — as people begin to prepare for the holidays and put certain personal and business matters on hold.

The result? A collections sprint as the year closes. Law firms deal with it every year — a large percent of revenue is collected in the last three months of the year. Could better collection procedures be put in place to avoid this year-end ritual? Of course! But let’s focus on tips to help you get more money in now.

The Collections Plan: Start With Over-Ripe Accounts

Now is the time to look at past-due accounts and figure out where you are leaving money on the table. The tool you will need to assist you is your “aged accounts receivable” report. I suspect this might generate one of the following reactions from you:

  • Confusion, as in “Crap, do I even have this kind of report?” (Add “buy accounting and practice management software” to your holiday shopping list!)
  • Panic when you see how very few past-due amounts await collection, and how little cash you have on hand. (Be happy the clients you have actually paid you. Next year, get more clients.)
  • Frustration when you realize how much time collecting past-due money is going to take.
  • More frustration because you haven’t set up the ability to accept credit cards for client payments. (Eliminate this frustration now and setup credit cards: Here is the link to LawPay.)
  • Disappointment that you let past-due accounts get to this point.
  • Relief that you have money to collect!

Putting emotion aside, here are a few things you can start on — this week — to boost your year-end revenue number. Continue reading

Year-end planning for lawyers: Your cases

Focus on successPeggy Gruenke | September 2016 | Law Practice Management for Solos

Getting Ready For Year-End: Review Your cases

It’s September and year-end is quickly approaching. All of those good intentions you had in January to organize your law firm will now be put to the test. Before your schedule is consumed with holiday activities and last-minute travel plans, now is a good time to focus on what needs to be done to wrap up the business year and get a head start on 2017. As an attorney and business owner, year-end can become the most stressful time of year. To help you out, we put together this list of four areas on which to focus between now and year-end, while your business may be slower than normal.

  1. Your cases
  2. Your clients
  3. Your finances
  4. Yourself

Your Cases

Like other small businesses, many law firms don’t evaluate their business situation in real time. Either they review their results after they’ve occurred or not at all. Being able to evaluate your cases implies you were collecting data along the way, whether in your law practice management software, using Excel spreadsheets or if you even still use paper. So in our first area of reviewing your cases, here are some questions to get you started:

  • How many new cases have you gotten in 2016, by practice area?
  • What cases were more profitable?
  • Did you hit any home runs – have that one big case?
  • What cases did you enjoy working on the most?
  • What case was your biggest headache?
  • Who referred you the most and best cases?

Asking yourself these questions will help you look back and reveal the some strengths and weaknesses in your business and what may need to be put in place for 2017. Continue reading

The 6 Month Financial Checkup: Are you making money yet?

Law firm ProfitabilityThis article was originally written for Attorney at Work in 2014. It has been re-written and updated for this blog post.

So it’s July and you will be sitting down to reconcile your bank accounts for June’s activity. This is an exercise you do (should be doing) every month. As long as there’s money in the checking account, life must be good – right? Maybe, but it begs the question – How profitable is your law firm and can it be doing better?

Six months are in the books and now is a good time to evaluate a few of your firm’s financial metrics and law firm profitability before you plow through the next 6 months of the year. Step back and review where you are in relation to your 2016 budget you created in January. Are you profitable and making money yet? If you never created that budget, no worries, this article will help you plan for the next six months with a budget and a system in place. I have included a sample budget tracker spreadsheet for you to start with now.

While looking at the financial data and key metrics you should be tracking and measuring, let’s ask a few questions to get you in the mindset of looking at your firm as a business and preparing for a more successful next six months.

  1. Are you paying yourself a monthly salary and is it enough to cover your personal expenses? Or are you randomly taking money out of the business when the bank account looks healthy enough to do so?Payroll

Goal: Build you salary into your budget along with payroll taxes. It is tempting to just randomly take out money but the tax implications for this habit will catch up with you the next year. This task also requires you to create a personal budget so you know how much salary you and your family need in order to pay the monthly bills and save for your kids college!

  1. Do you know what you have to bill and collect every month to cover your firm’s monthly expenses, which includes your salary? This is your monthly “nut” – the money you will need very month to pay fixed expenses. Know your “nut” assumes you know your monthly fixed expense.

Goal: Calculate your “monthly nut.” Put this number in a very visible place so you look at it every month as a reminder that once you hit this number, you are making profit for your family and your future retirement.

  1. Does your budgeted income number reflect your collection realization rate?

If you budget to bill 1500 hours/year at $200/hour, your budgeted revenue is $300,000. But it’s not a perfect world and this is not what will be collected. Knowing your collection realization rates will help you set a realistic revenue number to drive your budget.

Collection Rate

Goal: Calculate your YTD 2016 collection realization rate. Shocked at how low it might be? A collection realization rate of 90% should be an attainable goal for you. If it seems daunting based on how low your current collection rate is, don’t worry. This is one area of your financial dashboard that you can improve upon by changing billing habits and tracking accounts receivable.

  1. Do you know your year-to-date profit or lose? How are your actual numbers compared to what you budgeted for? A profit and lose statement is sometimes referred to as an income statement. It is simply an accounting report comparing revenue/income to expenses, usually shown monthly compared to last month for the same time period.

Income is based on a few things discussed above: billing and collections. Expenses are something that can surprise you if you are not tracking them monthly. Having the prepared budget you review each month is invaluable for tracking expenses. You may not think you are spending a lot of money until you see it in writing.

Profit lose

Goal: Make sure your accounting system is setup with a chart of accounts that segregates expenses by categories that you wish to track. Then every month enter the actual amounts spent and watch for any unusual trends. If one month was higher than usual, adjust for the remaining months so you don’t overspend.

  1. Do you have a cash flow report that you can look at every month?

A cash flow report is simply a way for you to keep an eye on your actual checking account balance. If you are reconciling every month and updating your budget/financial tracker spreadsheet, then you will know how much you are starting with every month – with enough money in the checking account or not enough. Once again, it gives you data to make decisions about your business so you can be proactive and not reactive.

In the sample budget tracker/financial spreadsheet, the beginning cash balance for the next month is calculated this way:

2016-07-13_21-21-03

 

 

 

 

Goal: Commit to reconciling your bank accounts within the first few days of each month and updating your budget/financial tracker spreadsheet with the reconciled amount. Having correct and current data is essential for making good business decisions.

Cash Flow

  1. How many hours and dollars are you billing each month and what is your average hourly rate?

You can’t get paid unless you are billing every month. Knowing how much you are billing every month and what the trends are will help you see your financial future, not through rosy glasses but actual numbers.

Goal: Track your billable hours and bill promptly and regularly. Train your clients to expect to pay monthly for their legal services.

Hours billed

  1. How many new matters are you setting up each month and what has been the trend? Is the pipeline full for continued cash flow? Do you have an even balance of hourly vs. flat fee vs. contingent?

Goal: Track the number of new matters per month and visualize the growth. A month with a low number of new matters can signal less income in the coming months. Especially combined with a low beginning check register balance. Knowing this ahead of time can help you prepare. Maybe look at expenses closely over these upcoming months and defer expenses if possible.

Matters

  1. What is your six-month collection realization rate? Is this a weak spot and a reason for low revenue numbers? Your collection realization rate is the percentage of your billed fees that is actually collected. Pretty simple stuff. Collection realization rates are often overstated because lawyers tend to leave uncollectible receivables in the system for an unrealistic time period, rather than admit the money will never be collected.

Goal: Commit to calculating your six-month collection realization rate and for the remainder of the year, set a goal to increase this by 2%. An increase of 2% can yield additional money without doing more work.

Collection reallization

  1. What are your outstanding accounts receivable 30, 60, 90 and over 90 days? This is an area that can yield additional profit for your firm, without putting in longer hours, by simply tighten up or putting in place good receivable management practices. You are not in the business to extend credit and make loans. Set expectations with your clients’ early on regarding payment of invoices. You are a small business owner and cash flow is important. They should understand and respect your business needs. If they don’t, fire them.

Goal: Implement monthly billing procedures and collect all payments before they hit 90 days past due. Create a procedure to send letters requesting payments once account hits 60 days past due and then follow-up regularly. Analysis past due accounts in excess of 1 year. They have little chance of being collected. So don’t count on this money coming in. Write if off and move on.

AR

  1. Don’t have a budget or method to track your firm’s financial data? Use the summer month of July to build yourself a nice spreadsheet so you are ready for the next six months in 2016. This is an invaluable exercise and once done, it easily converts to an annual worksheet.

Improved understanding of these financial metrics will assist you greatly with strategic business development initiatives–all of which are critical to remaining competitive and profitable as a solo and small firm attorney.

Written by Peggy Gruenke with CPN-Legal, a company whose mission is to help solo and small-firm lawyers build better businesses. She is active in the ABA GPSolo Division and a frequent speaker at bar associations and ABA TechShow.

Implementing project management in your firm: A few tips to guide you

Project Management Flow ChartMarch 2, 2015 | Peggy Gruenke | Practice Management Consultant | ABA Legal TechShow Speaker 2015

Project Management = Matter Management

Project Management is quite the buzzword these days. The ABA recently published a new book, The Power of Legal Project Management, which has resulted in a number of articles and new CLE programs related to this topic. Legal Project Management is a very broad and deep topic, (the book has 517 pages!), the focus of this article is to create the mindset that legal project management is nothing more that matter management. I’ll explain the basic components of matter management and how it can bring a competitive advantage to your firm.

While Legal Project Management (LPM) has been adopted by most larger firms, a new trend is developing where smaller firms are looking to improve profitability, billing realizations and gain a competitive advantage by designing and using matter management tools. The practice areas best fit for project management are litigation cases and even larger transactional cases. Over the next 5 to 10 years, matter management tools will become a normal way of doing business just like today, how client intake and fee agreements are part of every current law firms’ tool bucket.

At the basic level, matter management involves defining, planning, executing and evaluating. The reason it is growing rapidly, is it can be a competitive advantage in the following areas:

  • Enhance current client relationships by showing them your proactive approach to handling their matters
  • It provides a better way to monitor fees and costs
  • Improve communication with clients and eliminate surprises
  • Deliver greater value to clients by reducing clients’ total legal costs
  • Reduce the average cost of certain types of cases through the development of processes
  • Manage and share the risk
  • Increase profitability and realization rates
  • Improves financial reporting because you are capturing more and better data – key metrics
  • Develop better internal business practices and increase efficiency
  • Build good processes to increase productivity
  • Gain a better understanding of how you are getting things done

Continue reading

Use LinkedIn’s Relationships Tool to Builder Relationships

Peggy Gruenke | February 2015 | Law Practice Management for Solos

How to Use LinkedIn to Build Relationships and Track Prospects

Have you ever wondered how many of your connections are clients, referral sources, or potential clients?

Or

  • Do you forget to send follow up emails to some of your prospects and referral sources?
  • Perhaps you regularly lose the notes that you have collected on your prospects?
  • Have you ever wished you remembered how you met a particular prospect and who introduced you?

If any of these situations are true for you, then you would find great value from LinkedIn’s built in organizational tool, the Relationship Tab, available to both free and paid members. Even if you are just getting started with LinkedIn, these are great tools to know how to use. And the larger your network grows, the more valuable you will find this feature to help you keep organized and stay on top of your networking and lead generation efforts.

This feature also allows you to save and record information on contacts in your network that you are not yet connected to (2nd, 3rd, and group connections). The benefit of this is that you can create a list of potential prospects that you would like to connect with, record information that you want to keep handy about them, and then track your efforts to connect with them.

BTW, you don’t need to worry about the information that you keep in this feature: it is all private, so no one else will see what you’ve written.

So let’s get started.

  • Just below a member’s image and headline is the Relationship and Contact Info box.
  • The Contact Info tab is a quick look at that person’s email and other social profiles they’ve shared.
  • The Relationship tab is where you’ll find the real functionality. You can see a timeline of your association (including the date you connected), as well as conversations you’ve had on LinkedIn or Gmail (if you have set up this sync feature.) You can also add notes, set a reminder to follow up, record how you met and assign a tag to the person.
  • If you are connected to the person, you will see the date that you Connected to them. If you are not connected yet, it will show the date you Saved as contact.

Continue reading

Is 2015 going to be a profitable year? Key Metrics to Track

January 2015 | Peggy Gruenke | Clio and Law Practice Management Consultant

Business Plans for Solos

Key Metrics to Review for Profitability

Now let’s look at different key metrics you may want to review and have in place for 2015. Understanding which key metrics you should be tracking and measuring is critical to remaining profitable as a solo and small firm attorney.

Using the below chart as a reference, here are six key metrics you should track for 2015. If you think six is too many to identify and track, then pick three. If you have never setup a way to track and review these key metrics, this spreadsheet will help you get started.

  1. Track the number of new matters you are getting by type: flat fee, hourly, contingent and pro bono
  2. Track number of hours you are billing on hourly cases and flat fee cases
  3. Your average hourly rate on billed matters
  4. How much you collected each month (revenue from cash flow worksheet)
  5. Your collection realization rate: what % of billed revenue did you collect
  6. Money not coming in: How much money are you leaving on the table every month

Money In Money Out - Preparing for 2015 Image Key Metrics

  1. New matter tracking. How many new matters did you set up each month and what has been the trend? Did the pipeline stay full for continued cash flow? If you have good law practice management software, this information will be right at your fingertips by running reports.

One thing you want to look at is the balance between your types of cases. Too many contingent cases will create very uneven collections since these cases have a long life. They also have expenses related to them. Hourly cases should be generating a nice flow of income as long as you are billing regularly. If you do a number of flat fee cases, it’s important to make sure you are not only profitable but you are profitable at a decent hourly billing rate. Flat fees also mean you may have to manage the flow of this money between your trust account and your operating account, creating invoices and paying yourself at certain milestones. Pro bono cases should be one of you yearly goals as part of your business development plan.

Tip: If you do a lot of contingent cases and find your monthly cash flow having too many valleys, open up a firm savings account and deposit a portion of your next contingent fee in this account. Move it over to your checking account as needed to cover your monthly “nut.” Continue reading

Year-end planning for lawyers: Focus on your financial data

December 22, 2014 | Peggy Gruenke | Law Practice Management Consultant

Year-end planning: Focus on current clients

So what can you focus on in December to help evaluate your 2014 numbers and plan for a stronger 2015?

  1. Run the accounts receivable report and spend time on collections.

Looking at this past due invoice report, there may be another “oh crap” moment but also a sense of hope. This money, if collected, could be in your next paycheck before year-end and the holiday spending season.

December can be a tough month to do collections and you may be kicking yourself for not having been doing this all year or at least starting earlier. In December, clients are focused on the holidays and upcoming expenses related to gifts and parties. But it is also the time of year when companies give out bonuses. So your client may have an additional source of revenue in December to pay your invoice. Provide a small incentive and consider offering a discount if paid before year-end. If you represent businesses, they are usually looking to pay all their expenses before year-end, so do them a favor and send their bills frequently during December.

Tip: On active cases, bill every two weeks in December but include a letter explaining why the change in your billing process. You are a small business owner. They should understand and respect the fact that you are being proactive and working on your business’ year-end.

Here is an article that contains many more tips about year-end collections. (I can give you a link to an article I wrote about year end collections)

  1. Review what is in your Trust account.

This is a great time of year to make sure you have been diligent about moving money from your trust account to operating account as fees were earned. It also great time to make sure all of your client ledgers are in balance.

Run your Work in Progress (WIP) report and see if there is any time or expenses sitting out there that you can invoice and pay yourself, transferring Trust funds to operating before year-end.

If you have money in client ledgers, run their individual client ledger report and send them a copy so they have a current record of all the transactions during 2014. This is also a great opportunity to stay in touch with your current clients and show them you are on top of things. Continue reading

Clio Turns Tasks into Processes: Sample Settlement Process

Dec 9, 2014 By Peggy Gruenke, Certified Clio Consultant and Xero Certified

This year, Clio introduced a new way to do tasks which, coupled with the Gmail integration, has pretty much brought a whole new level of organization, efficiency and productivity to getting work done with Clio. Task management was an area Clio needed to give a facelift and the Clio team gave it more than just a facelift. Clio’s new smart, cascading tasks feature saves you a lot of time, knowing exactly what you need to do with each new matter or milestone within a matter instead of having to create the same tasks every time.

Now you can turn all those well-written processes you have in your firm manual into auto generated processes and tasks. Sounds a bit like project management. Here is a sample of setting up a settlement process using Clio’s cascading tasks,  managing how it gets done, when it gets done and who will be doing it. Managing the resources, the time and the workflow.

There are certain types of funds that require special handling. Settlement funds fall into this category. There are ethical duties a law firm must adhere to when handling such funds. Clio has great tools to help you manage client settlement funds. These tools ensure proper accounting procedures are followed and the transactions are correctly recorded in the client trust account.

When processing settlement transactions, there are usually many pieces of the puzzle that need to fit together in the right sequence and with the correct calculations. The more you can automate this process, the less chance for errors. This article will illustrate how to use Clio to correctly and efficiently process settlements using two Clio features:

  1. Document templates with custom fields
  2. Task Templates and Cascading Tasks

1. Creating a Settlement Worksheet Document Template

For complete details on how to create and upload an Excel document template, here is a link to a Clio support article.

The settlement worksheet includes defining matter custom level fields and creating a matter custom field set. From the Settings/Custom Fields, add the following matter level custom fields:

  • Settlement Offer Amount (Type = Money)
  • % of Settlement for Attorney Fees (Type = Integer)
  • Settlement Check Amount (Type = Money)
  • Settlement Check # (Type = One Line Text)

Then create a custom field set called Settlement Fields and include the above fields in this custom set.

custom fields settlement 1

Create the template with Clio form field names and upload the Excel template to the Clio Documents/Template. The template will look like this; note the color-coded key regarding fields.

custom fields settlement 2

 

Continue reading

Back to Basics: 20 Tips to empower your practice

Back to basicsBy Peggy Gruenke and Alan Klevan

There is so much talk about technology in law firms, Alan and I  thought we’d take a step back and focus on some basics skills to improve your practice. Your turbocharged office should NOT be solely turbocharged with technology. So here you go.

Write a simple business plan – for you, not the bank or a potential business partner.

The goal is for you as a business owner to see the big picture and understand exactly who you are, why you’re unique, and who you are equipped to serve. Creating it will help you answer questions like “Do I have a profitable business?” or “Am I making money?” or “Am I spending too much?” or “How can I get more clients?”

Build a budget.

Without a budget you are flying blind. Create some basic financial spreadsheets that help you keep an eye on where you are spending money and how much money is coming in. If clients are paying but bank account remains low, it may be a sign to look more closely at your monthly expenses and cash flow. (Link to my article Mid Year Financial Checkup) Don’t get bogged down in details. It is paralyzing. Starting today, add a column for current month and start entering your expenses and money received. This document will evolve over the months, but at least you now have a place to keep an eye on your business.

Know how much money you need to make each month in order to keep the doors open.

You should know this number by heart. If you don’t know this number, go back to #2 and build your budget. It should be written down where you can see it every day. Put it on your wall or on your computer screen. Put a picture of your family or next vacation spot next to it. Then, everyday write down how much money came in and keep a running total so you can see how close you are to reaching your monthly “need to collect” number. This number is your “monthly nut.” Any amount over that number is your money to take home. Continue reading

Holiday season and networking opportunities

Nov 24, 2014 | Peggy Gruenke | Law Practice Management Adviser

A fresh look at the upcoming holiday season: You never know where your next client will come from.

During the upcoming holiday season, you may not enjoy going to that holiday party in the neighborhood or to the family get-together. You may even dread it. But in actuality, this is perfect time to get ahead. November and December are a slow time of year for doing business. But they are a great time of the year to do some business development.

With all the holiday parties, events, and family visits, the holiday season provides some of the best networking opportunities of the entire year. So make sure you have a stack of business cards on hand. You may even want to make sure you have a logoed sweater or polo shirt to wear while attending some of these events. If you approach this time of year with the right mindset and accept the fact that business will be slow, all these holiday parties are the prime time to make fresh connections to start the New Year off on the right foot.

Here are a few tips to keep in mind as you prepare for these opportunities.

  • Remove the word “networking” from your vocabulary. Think of these events and parties as relationship-building opportunities. You never know where your next client will come from, so be sure everyone you meet knows what you do. And don’t introduce yourself with the first words out of your mouth being “I am a lawyer . . .” Most people have preconceived notions about lawyers that may be less than favorable. So avoid any negative reactions and find a new way to introduce yourself. Such as “I help people recover losses related to a recent injury.” Or, “My business helps small business owners get started.”
  • Make it about others. Listen more than you talk and, as you listen, find clues to remember what you discussed and the person’s name. People generally like talking about themselves, their job, and family. By listening, maybe you will be able to introduce people to other people. People appreciate it when you do the networking for them, and they like to know someone who is connected. Be content listening and soak it all in.
  • Talk about something other than business. In building relationships, which is what networking is all about, you want to get to know people on a personal level, as well as a professional level. Take advantage of the holidays to relax and socialize and get to know people a little better. Think of a few questions you can ask to get the conversation going:
    • “Who else do you know at this event?”
    • “How do you know the host/hostess?”
    • “What has been the highlight of your year?”
    • “What plans do you have for next year?”
    • “What kind of business are you in?”
    • “What kinds of clients are you looking for these days?”
    • (Be prepared to answer these questions as well!)
  • Follow-up with people you met who you think could be potential referral sources or a potential client. Connect with them on LinkedIn and send them a note card asking for an opportunity to meet after the holidays.

Lastly, while you are sitting around over the long weekends, not attending any holiday events, use this downtime to cleanup your contact database, learn more about how to use LinkedIn for a business development tool, or think about what tool you are going to add to your marketing efforts in 2015.

Peggy Gruenke is owner of LegalBizSuccess, a company whose mission is to help solo and small-firm lawyers build better businesses. Peggy is active in the ABA GPSolo Division, where she heads the technology committee and is vice-chair of the national conference committee. Follow her on Twitter @PeggyGruenke.