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How Do You Gauge Your Firm's Financial Health?

By Scott Randall, CEO, Advanced Legal Systems

When considering the term financial health, one might begin looking at the available funds in the various bank accounts belonging to the firm. While this may be a great place to start, watching your firm’s cash flow on a regular basis and looking at the issues behind the cash flow may be the best indication of your firm’s overall financial health. Various facets of a legal business affect cash flow, so let’s take a look at cash flow metrics that lawyers should be tracking on a regular basis.

WIP: Work in Progress
Financially healthy firms systematically move all of their work from unbilled to billed, but sometimes work stays stuck in WIP for much longer than it should. This work should be identified and “unstuck” as quickly as possible.

A/R: Accounts Receivable Aging
Invoices that age for long periods of time unchecked are a drag on cash flow. Firms need to minimize amounts that show up in the 60 and 90 day columns of their accounts receivable aging reports.

Outstanding Hard Costs
Fees are incurred to pay for the services of expert witnesses, filing fees, copies or other third parties that are assisting your firm to bring a case to resolution. Firms need to have a system of billing those outlays of funds back to the client quickly. Until that happens, the firm is out of pocket for those fees.

Historical trends
When you measure metrics over time, you can identify trends in your firm’s performance. You want to continue profitable trends into the future and stop the unprofitable ones as soon as possible.

How does your firm look at all of this information quickly?
Your accounting system holds the information you need to calculate these metrics, but then you need to gather the data (query), calculate the metrics and then present them in a way that is easy to understand so you can show the trends and make the best business decisions to improve the firm’s financial health.

Most attorneys don’t have the time to do this so we created BI Pro, Business Intelligence Professional using blink technology and spark lines. These are tools that quickly show the cash flow metrics mentioned above in a way that is easily understood and points to the areas the firm may need to focus on to improve.

Graphic of BI Pro A/R Detail using blink technology and a spark line

Consider just three things that this graphic tells you more quickly than a pile of reports ever could.

  • The top shows an accounts receivable trend spark line for one calendar year with all the peaks and valleys during normal business operations.
  • Below the spark line is a graphic showing blink technology. The size of a client’s colored box correlates to how much a client owes compared to the total firms A/R. The most billed clients occupy the top left corner, while the least billed (smallest contributor to firms A/R) sit in the bottom right.
  • The quicker the client pays invoices, the greener the box. The slower it pays the redder the box is.

Visualizations like this don’t tell the whole story, but they do quickly tell attorneys what aspects of the firms’ cash flow need their attention and where in the firms’ financial system to dig for the information they need. We created these visualizations to speed up the process of finding cash flow issues so they can be seen quickly and resolved to improve the firm’s financial health.

There are many more visualizations like this one within BI Pro. For more information about BI Pro visit or speak with your Thomson Reuters Elite sales team.

Advanced Legal Systems

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