When you are looking at the weekly reports for your law firm and see that billable hours are up, it’s easy to believe that profitability will follow. While money might be coming in, what does profitability really look like?
As an attorney you need to be concerned with case profitability because how much profit you make per case matters. Within those numbers can sit your tax plans, growth strategy, retirement goals, and more. Having a fractional CFO consulting on your case profitability can help you understand your true financial standing. Looking past billable hours, a fractional CFO can help you see what is, or should be, driving profitability.
Asking the Right Questions
When you first open a law firm, you’re really just happy to have money coming in. You may work with a specialized attorney CPA on straightforward balance sheets and tax preparation but your financial strategy is simply a drive toward seeing a profit.
In your excitement at seeing your bank balance grow, it’s easy to make a common mistake. And that’s not stepping back and analyzing why you're seeing profit figures rise. To have growth that is strong and continuous it’s important to get the answers to some key questions:
- What is driving the profit growth?
- Is that driver a good thing?
- Is it a one-time bump or is it sustainable?
- Was it expected?
- Can planning be built around it?
The answers to these questions shouldn’t come from what’s happening in the moment, there is key historical context that has to be considered. The questions should also not just be considered for how they affect operations this week but how they can inform a long-term financial growth strategy. These are the types of insights that can be gained from outsourced CFO solutions.
The Complexities of Law Firm Finances
Law firms operate with very specific financial considerations.
Uncertain cash flow - Clients don’t, for the most part, pay immediately as soon as a service is rendered. This means your cash flow is wholly dependent upon when clients pay. This uncertainty can make it hard to plan when to make needed expenditures or hiring decisions.
Billing processes - How and when are billable hours logged into a firm’s time tracking system? If things are entered and billed in a timely manner, it increases the cash flow opportunity. But if staff has to chase down information, their time and effort actually cuts into the profit potential in that entry.
Compliance costs - By the very nature of the work, attorneys have strict rules that must be followed in regards to trust counts, retainers, disbursements, settlement fees, and other related client-associated financial transactions. Lawyers will call it the cost of doing business, but is it actually costing you to do business?
Each of these is just one factor driving profitability potential at a law firm.
How a Fractional CFO Can Help Drive Profitability
Fractional CFO consulting services can help a law firm overcome these complexities by developing a forward-facing profitability strategy based around a comprehensive look at the firm’s full financial picture. This includes not just the current state of financial affairs but also things like when to recognize revenue to increase its impact as a profitability driver.
After looking at your firm’s financial operations, they can offer analysis and advice tailored to your specific situation. If you want to bring on a clerk or Junior Partner they can help you see when that would make the most financial sense. They can help you see if rates are both competitive and in line with profitability goals. And they can help you track your income to your growth strategy.
Fractional CFO Consulting
An attorney CPA relationship is important for building a strong tax strategy. It’s a strategy that will be built partially around profitability and to truly harness the firm’s profitability potential, you need the services of a Fractional CFO.
If you’d like to learn more about how you can benefit from outsourced CFO solutions, schedule a free consultation today.