Time Entry to Cash Receipts: 8 Steps to Increase Revenue and Partner Profits

Transcription

1 Time Entry to Cash Receipts: 8 Steps to Increase Revenue and Partner Profits Presented by Jay J. Erdman, CPA FM20 4/4/2017 7:30 AM - 8:30 AM The handouts and presentations attached are copyright and trademark protected and provided for individual use only.

2 Time Entry to Cash Receipts 8 Steps to Increase Revenue & Partner Profits April 2017 / Denver, CO Jay Erdman Rippe & Kingston Serving Law Firms Since 1979 Welcome Thank you for inviting me to present! 2 1

3 Our ALA Relationship First Installation in 1980 Still a R&K Client Keating Muething & Klekamp PLL We have been an active supporter of the ALA Nationally & Regionally Attending National ALA conferences since 1983 Presented at National ALA conferences Presented at Local ALA Chapter events 3 Our ALA Relationship R&K Law Firm Client users include current and former Executive Directors that have served as ALA Presidents, including Karen Griggs from Baker Sterchi Cowden & Rice LLC

4 Census Size of Firm < Note: Size does not really matter. 5 What do we all have in common? Do you sometimes wake up in the middle of the night worrying about your Law Firm s future? Do you think about ways to increase profitability? Are you losing more sleep than your Attorneys? 6 3

5 Today This presentation will give you some ideas to consider implementing in order to change your Firm s culture and increase profits as a result. 7 Law Firm Profitability Formula Income * + Salaries _ Operating Expenses = Partner Profits * All Additional Revenues or Cost Savings Go Directly to the Bottom Line and Directly Increase Partner Profits. 8 4

6 Law Firm Profitability Formula Income * * + Salaries _ Operating Expenses = Partner Profits * * Reduction in Income or Increasing Expenses works just the opposite 9 For Example: Revenue Direct Cost Indirect Cost Partner Profits $17,000,000 $6,000,000 $5,000,000 $6,000,

7 A 10% Revenue Increase Equates to a 28% Increase of Partner Profits Revenue $18,700,000 Direct Cost $6,000,000 Indirect Cost $5,000,000 Partner Profits $7,700,000 28% 11 Key to Enhancing Profitability Practice Management Resources Clients Billable Personnel Manage your resources both internal and external! 12 6

8 Factors that Influence Profitability Revenue Expense Hours Worked Hourly Rate Timely Billing Billing Realization Timely Collections Collection Realization % Salary Structure Overhead Structure Today s Focus 13 Time Entry to Cash Receipts 8 Steps to Increase Revenue & Partner Profits 1. Client Policies 2. Time Recording Policies 3. Time Resource Management 4. Time Capture 5. Timely Billing 6. Increasing Billing Realization 7. Timely Collection 8. Collection Realization 14 7

9 Step One Client Policies Rates Assignment Rate Review Reminder Rate Audit Average Billable Rate Rate Variance from Standard Credit Limits 15 Levels of Rates Rate structure should allow for market flexibility. Make sure that the time entries are correctly priced at the Client s agreed or contracted rate on the pre-bill, so that billing realization can be correctly measured. Billed $ /Relieved $ = Realization % 16 8

10 Rate Review Reminder The Next Review Date (entered at a Client or Matter level when rates are updated) reminds the Attorneys of rate expiration dates. Next Review Date Result: Rate discussions are initiated. Rates are updated timely, increasing revenue. 17 Rate Audit Performing routine rate audits alerts Attorneys of expired rates and lost revenue opportunities. Days Rate has been in Effect Lost revenue By comparing the time entry date to the last rate change date. Result: Expired rates are easily identified, along with the revenue impact. 18 9

11 Average Billable Rate The Firm s average billable rate (of the time being entered into the system) is calculated by taking the total billable time value at the Client s agreed rate divided by the hours incurred. It is a metric of the potential hourly rate of the value of the new time being added with the potential of being billed and collected, and should be increasing with positive rate adjustments. Result: With Client demands for special rate arrangements, the Firm can easily monitor changes in the Average Billable Rate for the new time being incurred. 19 Rate Variance from Standard Measuring the difference of time recorded value at standard rates versus Client special rates provides the amount of write-downs incurred simply recording billable time. Provide awareness of Write-offs. 1. Write offs due to Client rates less than Firm Standard rates Result: The Firm can easily monitor the financial impact of special rate assignments independent of write-offs and discounts

12 Credit Limits Implementing a credit limit policy requires the Firm s Partners to make an objective mental decision of what investment the Firm is willing to extend to Clients. Provide a weekly report showing Clients that are at for example, 80% of the established credit limit, giving the Attorneys advanced noticed of a potential project management, or billing, or collection problem. Result: Partners are required to consider the financial strength of (or lack there of) a New Client and are given the tools necessary to monitor those limits. 21 Step Two Full Day Accounting Time Recording Policies 3 Types of Time Client Billable Firm Non Billable Client Non Billable 22 11

13 Full Day Accounting Require Attorneys to account for the entire day (Billable and Non-billable). Timekeeping is a discipline Full Day Accounting is a methodology. Could this be missed BILLABLE time? Result: ABA studies indicate a Full Day Accounting methodology increases an individual s billable time by 8-12%. What is the value of your Firm s non-billable Time? Isn t it worth measuring? 23 There are 3 types of Time Entries: Billable Firm Non-Chargeable Client Non-Billable Potentially Billable Time Result: Billing Attorneys should make the Billing decisions not Working Attorneys as they record time. More billable time is captured and revenue increases

14 Step Three Time Resource Management Practice Management My Time Available for Work My Team Client Minding For resource management to be truly effective, it requires real time reporting (time recorded daily). 25 My Time Provide Attorneys a monthly snapshot of their time, budget, and variances. Result: Attorneys are better informed and more focused on capturing time. If everyone focuses on increasing their billable time (and achieving their individual budget goals), everyone benefits

15 Available for Work Timekeepers need a methodology to proactively enter available time that can now be assigned as Billable time. Reverses the dynamics Communicates availability to the Department Head Timekeepers worry about being fed next week, instead of Billing Attorneys worrying about the feeding. Requires Timekeepers to think about and plan their availability. OR a Firm Non-Billable Matter, called Available for Work Result: Billable assignments are matched to available resources and billable time increases. Once an hour is gone it is gone forever. 27 My Team A team leader needs to monitor their team members to see who is available for assignment and how many billable hours each team member is working each day. My Team s productivity at a glance Click to See a Daily Time Report My Team s availability at a glance Real time information (daily time reporting) is key to the success of monitoring your team s performance. Result: Practice Group Leaders can (more timely) manage their resources better, and billable time increases. Once an hour is gone it is gone forever

16 My Team My Team s Actual vs. Budget at a glance Result: Practice Group Leaders manage their resources better towards the Firm s budgeted objectives. 29 My Client/Matter Minding Attorneys need a way to identify those Clients or Matters that may be lacking attention, evidenced by no recorded time entries for the Client in, for example, 120 days. Identify and prioritize your minding efforts...set up a lunch. A time entry is evidence of the last contact. Result: The Attorney is reminded of Clients that should be contacted to stay in touch, manage their Matters, and acquire more work. If your Attorneys are not minding the Firm s Clients, your competitors might be FINDING them

17 Step Four Time Capture Budgeted Hours Timers Phone Log Restricted Words Save with Errors ipad itimekeep Element55 IntApp (Time Builder) 31 Budgeted Hours Budgeted hours allow Attorneys to monitor their actual and budgeted hours. Actual Actual vs. Budget Am I pulling my weight for the year? How productive was my week? My month? Result: Attorneys are more focused on contributing to Firm goals. Daily goals add up to monthly goals add up to annual goals

18 Timers Timers allow Attorneys to conveniently capture time. Utilize timers to track each billable task. Result: More billable time is captured and recorded. 33 Phone Log A phone log allows Attorneys to be reminded of daily phone calls, increasing the chances of capturing time spent with Clients. Easily obtain a list of phone calls for the day. Result: More billable time is captured

19 Restricted Words A Restricted Words functionality eliminates the possibility for a time entry to be rejected by the Client s electronic billing rules due to improper narrative description. Restrict the entry of words that will be bounced in electronic billing process. Result: Reduced Write-offs. 35 Save with Errors A Save with Errors functionality allows for incomplete entries to be saved for later revision and submission. Edit and submit the entry later at your convenience (time is not forgotten). Result: Time is not lost and forgotten (more billable time captured)

20 ipad The technology accommodates the Attorneys work habits and not vice versa. Enter time on the ipad utilizing the same URL as all other LMS+ applications. Result: More billable time captured. 37 itimekeep* Result: More billable time captured. *Legal Industry Business Partner 38 19

21 Element55 Element55 provides zero-click automatic time capture, as well as mobile time entry. *Legal Industry Business Partner Result: More billable time captured. 39 IntApp* Time Builder IntApp Time Builder captures time by monitoring document management applications, phone calls, Outlook appointments, etc. It generates and s a daily report to the Attorneys of their captured time, allowing them to specify which entries are to be merged into WebTime as activities. IntApp Time Builder entries become activities in WebTime. *Legal Industry Business Partner Result: More billable time captured

22 Step Five Timely Billing Asset Management Asset Management Unbilled Time New Clients/Matters 41 Asset Management Unbilled Time You need to provide the ability to easily monitor the age of unbilled time. How old is the Firm s unbilled time? Is it improving? Result: The Firm s investment of unbilled time is better managed by billing Clients quicker, reducing write-offs and recognizing project issues on a more timely basis

23 Old inventory starts to smell Unbilled Time & Cost 43 New Clients/Matters Allow the Attorneys to ensure that the new Clients are being billed timely and that they are paying timely. Clients / Matters that have been opened within the last 365 days for the Attorney 365 Are my new Clients being billed in a timely manner? Result: New Clients are monitored more closely

24 Step Six Project Management Budget vs. Actual Billing Realization Write Up/Downs Amounts vs. Standard Amounts vs. Client Special Rate Write Up/Downs Percentages vs. Standard Percentages vs. Client Special Rate Write Up/Down Reason Codes Billing A/R Adjustments 45 Project Management Matters are Projects Matters need to be managed to meet Client expectations taking into account all relevant issues and factors Matters need to be managed to meet the Clients Financial expectations as well THEREFORE Client expectations need to be defined and periodically reviewed, discussed, and addressed (weekly, monthly dictated by the Matters scope) Matters results Legal Cost 46 23

25 Analyzing Write-Offs Provide awareness of Write-offs. 2. Write offs in the billing process for time 3. Write offs in the billing process for cost Result: Write Off variances at all levels are quantified and measured. 47 Reason Codes Understanding the real reason why Write-downs occur is key to getting to the root cause(s) of the problem. Each invoice with a write-up or write-down and/or A/R adjustment should be tracked to provide the required data. Make sure you have a realistic and relevant quantity of reason codes not too few...not too many! 48 24

26 Step Seven Timely Collection Asset Management (Easy Access) Inquiry Access Outstanding A/R Invoice Access Accounts Receivable Management 49 Inquiry Access Allow Attorneys to view Client or Matter investment (A/R) conveniently. Result: Accounts Receivable is better monitored

27 Inquiry Access Allow Attorneys to view Client or Matter investment (A/R) conveniently. Graph Result: Accounts Receivable is better monitored. When balances and balance trends are available, the Attorneys are immediately informed of the Client status. 51 Outstanding A/R Provide Attorneys access to Clients outstanding A/R. Result: Click &

28 Invoice Access Provide Attorneys access to Clients outstanding invoice(s). Result: When the Client receives a copy of all outstanding invoices, what excuse do they have for not paying now? 53 Accounts Receivable Management Implement a structured approach to Accounts Receivable Management. Collector(s) !!! Bills & Payments History Open Invoices Collector Events Custom Collections Database Consider the cost of a dedicated, full-time person focusing and following up on A/R compared to the write-offs in Accounts Receivable generally, the ROI is there to justify the investment. Note A/R Adjustments are always underreported! 54 27

29 Accounts Receivable Management Attorneys are made aware of the Client s Accounts Receivable database and events. Result: Attorneys are better informed with the actual facts of the Firm s collection efforts. 55 Step Eight Collection Realization Cash Receipts Notifications A/R Adjustments 56 28

30 Cash Receipts Notifications notifications can alert the Attorneys of incoming cash. Result: Attorneys are notified daily of Client payments. 57 Analyzing Write-Offs Provide awareness of Write-offs. 4. Write offs due to A/R adjustments Result: Write Off variances at all levels are quantified and measured

31 Increasing Revenue and Partner Profits ROI Impact Quantifying Potential Results 59 Client Policies and Time Recording Policies 60 30

32 Time Resource Management and Time Capture 61 Timely Billing and Billing Realization 62 31

33 Timely Billing and Collection Realization

34 A 10% Revenue Increase Equates to a 28% Increase of Partner Profits Revenue $18,700,000 Direct Cost $6,000,000 Indirect Cost $5,000,000 Partner Profits $7,700,000 28% 65 THANK YOU! THINK BIG!!! Jay Erdman, Principal jerdman@rippe.com

35 YOUR OPINION MATTERS! Please take a moment now to evaluate this session. Thank you! 67 34

36 Synopsis Our experience has found that the key to Law Firm Profitability is more easily achieved by raising revenue than trimming expenses. This presentation involves a basic to intermediate overview of specific areas (from Time Entry to Cash Receipts) for increasing revenue and Partners' profits. It will focus on the various factors that influence enhancing revenue objectives and presents ideas and methodologies to the attendees that they might employ to achieve their desired goals. Today s Objectives: Evaluate Partner's profits calculations impacted by various levels of revenue enhancements Identify various strategies to increase Firm's revenue, including: Capturing more time Improving Resource Management Closing the Realization Gap Discuss methods to assess and improve the management of Unbilled Time, Unbilled Cost and Accounts Receivable 1 Time Entry to Cash Receipts 8 Steps to Increase Revenue & Partner Profits 1. Client Policies 2. Time Recording Policies 3. Time Resource Management 4. Time Capture 5. Timely Billing 6. Increasing Billing Realization 7. Timely Collection 8. Collection Realization 2 1

37 Bio Jay Erdman, CPA, a Principal in Rippe & Kingston, LLC, consults with a large number of Law Firms across the country on a range of topics including Partner development and Financial Management issues. He has spoken at local, regional, and national ALA and ABA events. Jay earned his degree in Accounting and Management from the University of Cincinnati and now has over thirty-five years of accounting experience and Law Firm specialization. 3 2