At Work and Play, CFOs Aim for Green

According to Mark Santiago of Huron Consulting Group, 'The average American law firm loses between 8% and 9% of its total fee revenue because of poor client acceptance procedures or inadequate collection techniques.' Poor conflict-checking procedures, work being done before a new matter is approved, and lax or untimely approval of new business can all result in revenue loss to the firm. Moreover, the malpractice risk from poor intake procedures can devastate a firm. On the collections front, problems that result in revenue loss include poor tracking systems, leaving collection entirely in the hands of the billing lawyer, and a lack of consequences to the partner whose clients don't pay or who pay late.

Documenting policies and procedures in both of these areas, uniform firm-wide implementation, and having staff whose job is to follow through in these areas, are the keys to improving revenue performance as well as to reducing malpractice exposure.

Mergers and Lateral Hires

Another interesting discussion contemplated firms that expand rapidly through mergers, only to implode when their incompatibilities come to light. When law firms consider merging, careful due diligence is absolutely necessary by both merger partners. Analyze the other firm's financial statements for several years back, considering the quality and collectibility of its receivables, realization, staffing and many other factors. With regard to potential cost savings from combining staffs, consider what impact that will have on both firms. Client representation conflicts also have to be resolved. Beyond the numbers, cultural compatibility has to be taken into account; this may override the financial considerations in whether a merger will succeed.

Analogous criteria apply to a single lateral hire. Look at actual results for the individual over several years in the past, including his or her collections pattern. How much of the prospective lateral's practice can be expected to move to your firm? (Are the lateral's major clients so tied to the former firm that they will remain behind?) In assessing the prospect's profitability at the former firm, be sure to adjust for cost structure differences between that firm and your own.

Seasonal Revenue and Debt

Jeff Steinberg of Redwood Analytics characterized the need law firms have to forecast and manage revenues in real time throughout the year. Each firm has to consider its own seasonal patterns of work, billing and collections. Making sure there is enough cash on hand when it's needed and managing debt both depend on the ability to forecast seasonal variations with reasonable accuracy.

The challenge is to get timely forecasting data and keep it accurate as the year goes on. Timekeepers and billers drive the data stream, so forecasting is only as accurate as the data they submit. Buy-in by the lawyers is therefore essential, and that starts with the governing committee and the managing partner. Partner compensation can be used as a tool to incent partners to good timekeeping, billing and collections habits.

Firms that pile on debt until the last month or two of the year are hurting themselves, both in interest costs and in the perception of their clients that they are not very good business people.

Helping Management Focus

Scott Cotie of Dorsey & Whitney stressed another vital CFO responsibility. How many of us provide firm management with monthly reams of data and yet fail to help them focus on critical areas that really need attention? We are communicating with busy professionals whose interests do not lie in financial management. They need summary information that is accurate, timely, and easy to understand and use. The specifics of such reports will vary from period to period, of course, and the reams of supporting detail relegated to storage must remain accessible to those interested in the background.

Technological Necessities

No meeting like this would be complete without some discussion of technology. Doug Caddell of Foley & Lardner described tools that used to be nice to have, or that gave a firm an edge a couple of years ago, but now are 'must have' components of the firm's technological base. For client support, firms now rely much more on technology, notably case management and litigation support systems. Web sites, once a novelty, are now expected by clients.

Similarly, client counsel are beginning to demand technology-based services like electronic billing ' and we as law firms should talk to clients about electronic payment as well. In the current economic climate, corporate law departments are being cut back. That calls for outside counsel to function as a more integral part of the client's team, with access to appropriate parts of each other's computer systems a must. This trend increases a firm's visibility and thus its opportunities, but the firm must be prepared to take advantage of it.

A Lighter Shade of Green

Not all of the conference was hard work. Starting things off this year was the First Annual CFO Golf Scramble, held at the historic Biltmore Hotel's golf course. Pictures in the hotel corridor show people golfing on that course in garb I wouldn't be seen in at a costume party. Yours truly, not a golfer, got in some Quality Beach Time instead; but I understand a fun time was had by all who played, and prizes were duly awarded.

James W. Davidson is Director of Finance for Holland & Hart in Denver. The largest Colorado based law firm, Holland & Hart serves clients regionally, nationally and internationally. A CPA, Jim has headed financial operations at the firm for 25 years. Previously, he spent 10 years in public accounting with a predecessor to PriceWaterhouse Coopers, doing audit, tax and consulting work for a variety of large and small businesses in the Mountain states.

The 7th Law Firm CFO Institute, held annually in the late winter, visited Miami for its most recent conference. The event, co-sponsored by Accounting and Financial Planning for Law Firms and organized by Northstar Conferences, attracts some 75 Chief Financial Officers, Executive Directors and others with an interest in law firm financial matters. The topics were timely and focused, and the speakers knew their subject matter well and kept the discussions moving.

Threats to Revenue

The first topic of the first session was ' what else? ' revenues! All of us as law firm financial types struggle with how to 'enhance' revenues. We're not talking here about how to raise billing rates or chargeable hours; those decisions depend on the markets each firm serves and its culture. Our focus was first on client intake and, second, on techniques and procedures for collections.

According to Mark Santiago of Huron Consulting Group, 'The average American law firm loses between 8% and 9% of its total fee revenue because of poor client acceptance procedures or inadequate collection techniques.' Poor conflict-checking procedures, work being done before a new matter is approved, and lax or untimely approval of new business can all result in revenue loss to the firm. Moreover, the malpractice risk from poor intake procedures can devastate a firm. On the collections front, problems that result in revenue loss include poor tracking systems, leaving collection entirely in the hands of the billing lawyer, and a lack of consequences to the partner whose clients don't pay or who pay late.

Documenting policies and procedures in both of these areas, uniform firm-wide implementation, and having staff whose job is to follow through in these areas, are the keys to improving revenue performance as well as to reducing malpractice exposure.

Mergers and Lateral Hires

Another interesting discussion contemplated firms that expand rapidly through mergers, only to implode when their incompatibilities come to light. When law firms consider merging, careful due diligence is absolutely necessary by both merger partners. Analyze the other firm's financial statements for several years back, considering the quality and collectibility of its receivables, realization, staffing and many other factors. With regard to potential cost savings from combining staffs, consider what impact that will have on both firms. Client representation conflicts also have to be resolved. Beyond the numbers, cultural compatibility has to be taken into account; this may override the financial considerations in whether a merger will succeed.

Analogous criteria apply to a single lateral hire. Look at actual results for the individual over several years in the past, including his or her collections pattern. How much of the prospective lateral's practice can be expected to move to your firm? (Are the lateral's major clients so tied to the former firm that they will remain behind?) In assessing the prospect's profitability at the former firm, be sure to adjust for cost structure differences between that firm and your own.

Seasonal Revenue and Debt

Jeff Steinberg of Redwood Analytics characterized the need law firms have to forecast and manage revenues in real time throughout the year. Each firm has to consider its own seasonal patterns of work, billing and collections. Making sure there is enough cash on hand when it's needed and managing debt both depend on the ability to forecast seasonal variations with reasonable accuracy.

The challenge is to get timely forecasting data and keep it accurate as the year goes on. Timekeepers and billers drive the data stream, so forecasting is only as accurate as the data they submit. Buy-in by the lawyers is therefore essential, and that starts with the governing committee and the managing partner. Partner compensation can be used as a tool to incent partners to good timekeeping, billing and collections habits.

Firms that pile on debt until the last month or two of the year are hurting themselves, both in interest costs and in the perception of their clients that they are not very good business people.

Helping Management Focus

Scott Cotie of Dorsey & Whitney stressed another vital CFO responsibility. How many of us provide firm management with monthly reams of data and yet fail to help them focus on critical areas that really need attention? We are communicating with busy professionals whose interests do not lie in financial management. They need summary information that is accurate, timely, and easy to understand and use. The specifics of such reports will vary from period to period, of course, and the reams of supporting detail relegated to storage must remain accessible to those interested in the background.

Technological Necessities

No meeting like this would be complete without some discussion of technology. Doug Caddell of Foley & Lardner described tools that used to be nice to have, or that gave a firm an edge a couple of years ago, but now are 'must have' components of the firm's technological base. For client support, firms now rely much more on technology, notably case management and litigation support systems. Web sites, once a novelty, are now expected by clients.

Similarly, client counsel are beginning to demand technology-based services like electronic billing ' and we as law firms should talk to clients about electronic payment as well. In the current economic climate, corporate law departments are being cut back. That calls for outside counsel to function as a more integral part of the client's team, with access to appropriate parts of each other's computer systems a must. This trend increases a firm's visibility and thus its opportunities, but the firm must be prepared to take advantage of it.

A Lighter Shade of Green

Not all of the conference was hard work. Starting things off this year was the First Annual CFO Golf Scramble, held at the historic Biltmore Hotel's golf course. Pictures in the hotel corridor show people golfing on that course in garb I wouldn't be seen in at a costume party. Yours truly, not a golfer, got in some Quality Beach Time instead; but I understand a fun time was had by all who played, and prizes were duly awarded.

James W. Davidson is Director of Finance for Holland & Hart in Denver. The largest Colorado based law firm, Holland & Hart serves clients regionally, nationally and internationally. A CPA, Jim has headed financial operations at the firm for 25 years. Previously, he spent 10 years in public accounting with a predecessor to PriceWaterhouse Coopers, doing audit, tax and consulting work for a variety of large and small businesses in the Mountain states.