One anonymous person stated: “Pain is only valuable once you know that you’ve learned from it.” A big part of implementing any plan is creating a feedback loop that reports back on how you are doing, thereby allowing you to take corrective action. Building an effective set of feedback loops for your practice is dependent on determining what are the critical success factors for your practice that you need to monitor.
There are financial indicator loops such as:
- Time and Billing actuals vs expectations (by timekeeper)
- Client compliance indicators: retainers, accounts receivable reports, write-off reports
- Cash flow indicators: budgeted vs actual receipts, A/R aging reports
- Trust and general account reconciliation statements
- Profitability indicators: Effective Hourly Rates vs standard hourly billing rates, leakage reports, write-up, write-down reports, line of credit balances
There are non-financial feedback loops such as:
- Staffing indicators: hours of work expectations, compliance with anti-fraud measures and other office policies
- Client satisfaction indicators: referrals by clients, repeat business, client turnover
- Staff satisfaction indicators: staff turnover frequency, sick days taken
Then there are curious feedback loops that are partly financial and partly not, such as:
- Average amount of fee bills (divide the total of all fee bills by the number of bills rendered): Compare this to a prior period (year, month). What has changed and why?
- Unbilled WIP: Ballooning WIP can be an indicator of future cash flow problems. It can also be an early-warning sign of a lawyer facing a personal crises (substance abuse, depression, family problems etc.)
- Average overhead per lawyer: divide your total overhead by the number of lawyers on a FTE basis. Compare this with prior years. What has changed and why?
Without feedback loops on your law firm activity, you will not have any real data to use in determining if you are in fact progressing towards your goals. And this means that you are flying blind (and we all know about what happens when the blind lead the blind…)