The Numbers Game - Focus On Analysis For Profitability

In a recent cover story of Law Firm Inc. - The Business Magazine For Law Firm Executives, the magazine focused on how many CFOs of the AM 200 were turning their attention to metrics or analysis of data. They are using their systems of record to actually forecast and be able to take action to affect profitability of their firms given the current unstable economic climate. A tactic corporate America has been utilizing for some time now. The one common message from the CFOs surveyed, was the potential payoff of doing data analysis.

These metrics are able to be performed because the firms are striving to actually collect data and require EVERYONE to diligently do their data entry share. Now, if you are reading this, census data says there is a well over 80% chance that if you are in the legal profession, you are in a firm of 10 lawyers or less. So you say, "there's no way I have the systems, computer programs or resources that the AM 200 have." Well, that's where I think many think wrong.

While, in my opinion, there is lot left to be desired in your traditional practice management or time and billing software's reporting capability, many people don't even open the door to see what's in the closet. With a little time spent on the reporting capability of your business software programs, you might start to see that you DO in fact have this analysis capability right at your fingertips. Do you use QuickBooks or a similar invoicing system? There is a plethora of reporting capability right in your billing system. It really isn't just for balancing the account and printing the invoice. Having a look will also show you what information you are NOT collecting or entering so that you might change your data entry habits to give your reporting more value to you.

Reporting can also be used to learn what those transactions mean to your bottom line. With the right reporting capability in a properly utilized practice management system, even the smallest firms can measure and visually chart:

• Which matters have the highest profitability
• Which client provides you the highest profitability(not necessarily the one you bill the most)
• Which producer at your firm generates the most revenue
• Which producer at your firm generates the most new clients that keep you growing
• What type of matters cost you the most in resources and internal expenses

Now imagine how knowing this information might affect decisions you make on hiring, bonuses, raises, the client that you pay the most attention to, the matters that you take on and other business decisions if you KNEW this information ahead of time.

Even if you don't have the historical information now to start doing immediate business analysis, get a "system of record" started in your firm. The key to being able to do this analysis easily is to use a practice management system that has the built in tools to allow you to do extensive, flexible reporting and charting. The system should manage all activities and information around your matters, clients, time tracking and billing, at a minimum, all in a single system. The more you look into the reporting aspect when choosing a system, the more benefit you'll get in the end.

Now....USE the system. While many see the practice, matter and time management systems as a necessary evil and the "organizational tool" for the firm, it's TRUE value is in diligently using it, then leveraging that time spent investment to analyze and measure profitability and other metrics now, and to affect future financial performance, just like the big boys of the AM 200.