Year-end planning: Collect Data about Your Clients

Year-end planning: Focus on current clientsFocus on your current clients

Part 2: Tips for year-end planning 

Year-end planning tips. 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. Area #2 – focus on current clients.

The last weeks of the year tend to be slow for getting new cases, so use this time to focus on your current clients – your source of income for the first part of 2017.

  • Pick out your 5-10 best clients from 2016. First, define what a best client looks like:
    • Maybe these are the clients that always paid on time.
    • Maybe they always provided you with and returned documents on time.
    • Maybe they referred you other good clients.
    • Maybe they were just genuinely nice people to work with.

Look through your client list and start rating your clients from 2016.

Tip: You need a way to capture this client rating system in your database so you can develop reports on your rated clients. Your law practice management software should have the ability to setup custom fields. These are a great tool for capturing this data. When you produce the report and are able to separate where your revenue for 2016 came from, you will probably see that 80% of your revenue came from these best clients. But without capturing this data – you will never know.

After looking at your list of “A” rated clients, pick up the phone and call them. Let them know they were/are one of your best clients and you enjoyed working with them. If appropriate, offer to take them out to breakfast in January and set up your first business development meeting for 2017. Also, keep this list in a place where you can review it every week and continually ask yourself “How can I get more clients like these?”

Current Clients are a Potential Source of Income for 2017

For your current clients, who are your source of income for the next few months, do something memorable when sending out their December invoice. Prepare a case summary, outlining and highlighting tasks completed, milestones reached and any upcoming dates and deadlines. This is a way to remind them of the work you have done on their behalf and may make paying the bill a bit easier.

Tip: For estate planning clients, the holidays are the time of year when children are getting engaged and they will have the need to update their estate planning documents. Using your nicely organized client database, run a list of estate planning clients who have children around the age of getting married. In their letters, include a note about your services for young couples.

Is your database not that well organized? Well then, you have a new goal for 2017: start capturing more data about your clients so you can make better strategic decisions. CPN Legal can help you set up processes to capture more data. Give us a call if you’d like to discuss this and prepare for a great start in 2017 for your business.


 

Peggy and Chris Gruenke are co-owners of CPN Legal, 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.

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.

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