Best Practice: Financial metrics for a small firm
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. I am a partner in a three attorney litigation firm in Boston. Two of us are partners. We are in our fourth year in practice after leaving a very large firm. We are concerned that we could be doing better financially. We are haphazard in our record keeping, have no goals, and are not even sure what numbers matter. What are your thoughts are to the key number (metrics) for a small firm like ours?
A. Goals should be established for each attorney with monthly reporting showing performance against goals. Key metrics should include:
- Fees collected – working attorney
- Fees collected – originating attorney
- Fees collected – responsible attorney
- Billable hours – working attorney
- Non-billable hours – working attorney
- Billing, collection, and overall realization – working attorney
- Other goals – financial and non-financial
- Summary dashboard report should be developed.
- Attorneys should consider keeping timesheets for all worked time – billable and non-billable with specific goals for non-billable activities.
Firm management contribution is important. If both partners do not share in the firm management responsibilities then the partner committing non-billable time to firm management should be compensated in the form of an agreed amount or a fee credit that is run through the compensation system. If both partners participate in firm management, implement and document a management structure that clarifies management roles, responsibilities, and accountabilities for the partners, the office manager, etc. Respect the boundaries and avoid stepping over each other.
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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.