Best Practice: Law firm financial improvement plan for 2013
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. Our 17 attorney firm has had less than stellar revenues and profitability for the last several years. Our billing and realization rates are in line, we have a good mix of partners and associates, we have managed our expenses effectively, and our accounts receivable are at satisfactory levels. The culprit is utilization - billable hours. Partner annual billable hours are around 1100 hours and associate billable hours are around 1300. Everyone seems to be working hard. I would be interested in your thoughts?
A. Sounds like you have given the RULES (rates/realization, utilization, leverage, expenses, and speed/collection) formula careful thought and analysis. I agree that you have a problem with utilization. General guidelines for partners and associates for annual billable hours are in the 1700 range with litigation firms being much higher and smaller general practice firms being lower - sometimes in the 1500 range. However, 1100/1300 billable hours is a problem and should be looked into to determine the exact nature of the cause. Causes could be any one or a combination of the following:
- Insufficient work - lack of business
- Poor work ethic - not working hard enough
- Poor time management habits - lack of focus, goals, plan
- Poor time keeping habits - not recording the time and getting it captured in the system
Each attorney in the firm may have different problem areas. For some it may be they need to work harder. Set expectations and enforce them. Others may need more work and if work is not available their non-billable time should be focused on marketing and other firm building efforts. For those that have time management and or time keeping problems training/skill development should be provided.
Suggest you conduct a review and discussion with each attorney in the firm to identify causes and engineer an agreed to plan with each to work on appropriate problem areas. If habits need to be changed - be patient - changes in habits take practice and time.
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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.