Law Firms: Measure your success using key performance indicators (KPIs)

Hi there. Linda Artesani, Artesani Accounting. This week I'm going to talk all about KPIs. So what is a KPI? It's a key performance indicator, and it's one of those things that we measure, we use to measure different metrics inside of your law firm, your law practice. And working with mid-market firms or the larger firms with multiple partners, we find that it's best to start to target certain areas that we like to track to see what's working, what's not working. and obviously help the firm grow in a smart or intelligent way and not so much kind of throwing the spaghetti at the wall and seeing what sticks. So part of what we do is we use QuickBooks Online Advanced, which has a lot of features right inside the platform that help us figure out what would work the best for you. It also has Fathom, and Fathom has multiple KPIs. It's kind of a problem that we see sometimes when we start to have the conversations A lot of times we're brought in because maybe there's a problem with the trust accounting and we work really diligently on getting all of that balanced. And then the attorneys usually look at us and they say, hey, you really know what you're talking about. Why don't we engage you further? And maybe there's a person in place, maybe an admin that's doing the work and you want somebody with that level of expertise that's outside the firm, that's not sitting in the day-to-day office. So we'll come in and we'll analyze several areas, and I'm going to take you into QuickBooks and show you how we do this. But we'll analyze a lot of times marketing. So marketing is a big one. It's a place that a lot of law firms will hire out, and they'll hire a firm to come in, maybe fix up the website, which is usually needed. I've looked at some attorneys' websites and said, wow, they really could use that little bit of extra touch. If you've ever gone to look and buy anything from anyone, you log into their website, that's your first meeting impression. So you want to have that professional professional look to your website. So we'll go and look and see what's been spent there, but we'll also look to see where else. Maybe you're advertising family law and you're advertising on social media, or maybe you're doing advertisement— I, you know, you could be a PI attorney and you're advertising on billboards on the highway. So we want to track, not only track how the, the projects, matters are doing and how profitable they are, but also track how they're coming in the door, how the leads are coming in the door. Maybe the leads are coming in but they're not trying turning over into an actual client. So those are the places we want to track to see where is the marketing effective. We'll also take a look at your accounts receivable and see how that's working, if or not working, to see if you're collecting on maybe stale invoices that are just sitting there. We find a lot of times we get into the bigger firms, we find that sometimes it's a— there's a disjointedness to the workflow. You might have several people working on doing the invoicing, but They kind of dropped the ball. Nobody wants that job of trying to collect old AR. And that's something we can assist a client with and track that metric to see how much is sitting out there. One of the things we are really big on is cash flow. And you'll notice that with cash flow, we try to really make sure the cash is flowing in the door, especially with a PI firm. They tend to have, you know, that can get to be a sticky point. So we wanna make sure that the cash flow is there so the firm can run on its own. Maybe look to ways to get some client loans in so you can get some money in as the matters are going. Because don't forget, with the PI firm, you're having to foot some of those expenses prior to the matter or case closing. If the case is won, you get all that money back for the most part. If it does— if it's not won, then it becomes an expense on the books. So those are the things we'll look at. Immigration firm, we'll look at how do we make the process run better. So we work with multiple immigration firms, and a lot of times we'll see that the AR process is very manual, and we can come in and maybe automate a lot of that. And again, that's done through QuickBooks Online and their merchant services. So we can do that with fixed fees and batch invoicing. So there's a lot of things there. Let me take you into QuickBooks and I'll show you, and I'll also show you in Fathom how we can track some of these KPIs, these metrics, to really make sure that we are watching what's happening in the firm. You know, the attorneys, you guys are really busy and it's, you really, it's nice to have that person that's looking out for you and watching the whole picture to see if something's gone awry or maybe some expenses inflated where you want to really focus your attention on. So we do financial meetings monthly with our clients to just help them, to support them along the way. Let me share my screen. I'm going to show you QuickBooks Online. So we're here inside of QuickBooks Online Advanced and we're here. I just wanted to show you the Performance Center because I think this is just an amazing feature that I think is underused by a lot of firms. A lot of times I'll meet with attorneys and law firm clients, maybe we're working with the admin or whoever, and I find that they don't even use this part of it, this part of the program. So this is important. Now I'm going into the Performance Center because I really want to show you the benchmarks. So the benchmarks, if you think about it with QuickBooks, QuickBooks has got all this data, right? You sign up to use QuickBooks Online, and basically one of the things you're agreeing to is that they can read the data. They kind of sanitize the name off of it, but they look at the industry and they look at what you select in this category. So under the Performance Center, you'll see that there's a place here where I can fill out my industry type. So I can type in legal here. So there's all legal services, legal counsel and prosecution, offices of lawyers. That's typically the one that I pick. As you can see, that's not really Finite to practice area, but it's generalized because QuickBooks is generalized right now. I'm going to come in here in the Performance Center. So that's found— if you look over here to the, to the left, you'll see that it's found under the Reports section. And then you just toggle over from Reports to the Performance Center side. This is where you can grab these charts. Now, I like to— if it's a multiple practice type of firm, I like to track the different practice areas. Which one's more profitable? Are you making more money on family law or estate planning? These are some of the answers you can get from the data as you start to track the legal services by practice area. So if you have a multiple-style firm, you'll be able to track that. Another thing you can track in here because of the benchmarks, and I think this is really important, is you can start to look at different benchmarks in here and track net profit margin under the benchmark section. So now that I've got my industry benchmark in here, I can see where the profitability lies and then see how I'm doing against that profitability. I want to see how this firm is doing. Is it, is it in line with what others are doing, or is there room for improvement? And it's one of the things that we can assist with because we work with different multiple clients that are all law firm based, as opposed to maybe a bookkeeper that's more generalized. And we can check, look at net income. Like I mentioned before, we can look at cash flow. We've got some quick ratios in here. Accounts receivable. I want to see how much is outstanding. If it's a large number, I want to get in there and I want to start helping the client collect. There's workflows and automations inside of QuickBooks Online Advanced, and it's right over here also on that left toolbar where you can go into My Workflows. And you can see that I've— part of this is automating some of the things that were manually done in the firm. When we come in and we start to set that up and do that for a client, what we end up doing is we end up freeing up some time. Automation will also make it so that your firm runs smoother. So I might set up a reminder. You may email your invoices, which a lot of times I come into the firms and they're still paper-based and they're folding up the invoices and mailing them out. We jump in and we get them on a more online-based product where we're emailing out the invoice. And then a lot of times people get an email, they might look at it and they forget about it. So this sets up a payment reminder. So if you're net 15, you send out the invoice and maybe on the 15th day you remind them, hey, I didn't get the payment. So what this will do is you'll set it up in your system that maybe as a specific amount, you're not going to— you're going to send out a reminder. So if I come over here and edit this, you can set the reminder after the invoice is due, maybe send it on the 16th day that it didn't come. You can put it in maybe 1 day or 0 days, you can put whatever you want in here. You're going to send the client a follow-up email, you can set up a task. So if you've got multiple people working on this, working on this account, you can have whoever's in charge of kind of following up with accounts receivable, send them a note saying, keep an eye on this, maybe 2 days later or whatever, that you need to check and see where we're at with accounts receivable. You want to stay on it. A lot of times we find with firms it just gets lost because nobody wants to be that person that's making the phone call saying, hey, you didn't pay me. So this is a way to get this set up. Now, a lot of firms, you collect a retainer and you're applying the retainer, and that's great. But if you have a firm that has evergreen retainers, these are some of the things you might want to follow up with. A lot of the family law, it's a lot of just accounts receivable, or even immigration. Sometimes the immigration does— is not involved with trust, so it's more AR-based, and this is a great way to follow up with it. There's also a way that you can set up payment links so they can pay you with a credit card, or they can pay you directly with ACH. We recommend allowing your client to do a credit card. Now, a lot of times the firms don't really want to do that They'll sit back and say, I don't want to pay the fee. We recommend Gravity Payments. And why do we recommend Gravity? Because Gravity has a way that you can actually put it on the invoice that if a client wants to pay with a credit card, it will show the fee and the client can pay the fee. So it, it really clears up that sticky point where somebody may be a little hesitant because how are you going to do that with automating the invoices and the amount would change? Gravity solves that. Gravity also solves the problem of being— collecting a trust deposit. If you use LeanLaw, my preferred law firm software, if you use LeanLaw, it's integrated. So it's really awesome that way. You can send out a trust request so that retainer deposit, and it will come in right to the trust account. And if they paid by credit card, you can have the fee come out of the operating if your firm is absorbing the fee. I usually recommend that. Sometimes it's a little bit more— the client, the client might not want to pay the fee. They're like, wow, really, they charge me this much an hour and they don't want to pay the fee. So you just raise your rates a little bit and cover that. But if you want, there's an option to have that added on, which is really wonderful, and Gravity will solve that payment. If you have any questions about Gravity, please reach out to me and I will put you in touch with the people over there. They're wonderful people. We're very fortunate to have a great relationship with the Gravity people. You can also send a company email, you can send a push notification, you can set up some parameters, some conditions around this payment reminder. The other one that I recommend— I'm just going to discard the changes here— the other one I recommend is the overdue one. So the overdue invoice memo is a good one to have on, on track so that, say, now 15 days or whoever— a little lion coming in— 15 days or whoever is coming, you know, the invoice has not been paid. So now you're past that date that it was due, and now you're overdue. You can send a nice little reminder and have that in there. They have invoice approval, which I think is a great thing. So if you're not using a LeanLaw and you're a firm that doesn't have that, but you want that layer of having the ability for the attorney— like, the staff puts the invoice together, but you want it approved before it's sent. You've got this already inside of QuickBooks. So QuickBooks Online Advanced is the only one that has that. It also has roles and users, which is why we— this is the only one we recommend for law firms because it has the ability to filter out roles. And I'll be getting into that a little bit more as we go into November. I'm going to start doing blog posts on LeanLaw and QuickBooks and how the user roles are so important because you might want to have one person working only on the AR and that's all they can see. And I'll get into that a little bit more in the next video. So that's basically a short little tour of the Performance Center and some of the things you can get in here. I'll just slide down here. Accounts payable by aging period, revenue by time, expenses. You've just got so many different charts you can make. I think it's like 29 or 25 charts in here. So there's a lot of charts. Here's that net profit margin against the benchmarks. Cash flow, like I mentioned before, AR sitting on the books, not being collected. We jump in and try to get that cash flow moving in. I don't want to see 90-day column at all. I want to see, you know, the under 30. So if you stay on it and you have the right people in place to look for it, that alone will pay for your accounting services. And quick ratio over time. There's just so many, uh, different ones in here that you can select. It's like I got a couple of duplicates in here. So there's just a lot of different charts in here. Now let me take you into Fathom, and I'm going to show you Fathom and how the KPIs are really powerful there, and some of the other features in Fathom that I think are also underused. A lot of people don't even use Fathom at all. They get QuickBooks Online Advanced and they never click that little box. So let me take you there next. So to get to Fathom, we were in this Performance Center over here on the left, and now we're going to go over to, um, back to Reports. And then you can see it says Smart Reporting, and then there's this box with the arrow. You click that and it will bring you into Fathom. And I just so happen to be on the KPI page where you can pick some of the KPIs to track, and I will show you As I slide down here, you can get some reports. So there's some default reports that are very good in here. And then we have multiple places that we can track KPIs, profitability. There's things— and I love this one, Goal Seek. So if we sit down and do a— okay. Oh, because I don't have any data. So if we sit down and do a Goal Seek, let's do this one, um, of report. And we want to see how much. So say you're looking at your hourly rate, and this is where you want to kind of look at your benchmark, look at where the hourly rates are with the other local firms to see how you're doing. And then you can start to play around with this button to see if I start to maybe reduce the, you know, put the revenue goal in, you can start to really play around with this. And it just gives you a tool to kind of gauge where you're starting and where your goal is and where you want to go to. There's also a growth button. You can play around in here with some of the charts. And one of the things I really like about Fathom is that you're able to see visually what a lot of the reports in QuickBooks will show. But a lot of times for us with clients, we like to put a packet together so that way the client can— we'll do a financial board meeting once a month and maybe meet with the partners, and then they go back and try to look at Goal Seek or look at tracking different things. One of the metrics we track with attorneys, if there's multiple attorney firm, is we'll have the individual staff attorneys set some goals. We'll use Slack channel or Teams channel depending on what the firm uses and have them put their goals in and then start to track the metrics. We'll track the metrics per attorney by class, and then they can try to look at did they meet their goal. A lot of these items that we track for the attorneys, maybe the net performance score, we look at ways to track these things so that if the firm is on the larger side or has multiple people working there, the partners want to know which attorneys are really performing well and maybe ones that aren't, and how can we work to improve that. That might help them with even deciding how much of a raise an attorney on staff would get. So there's lots of reasons where we want to motivate and try to get— track these things, and that's what our job is, right? So KPI Explorer, you can start to look at different KPIs that you want to track. And we just pick a few here. I try to keep it to 5 or 6 and under. We try not to get too many because we really don't want to make it overwhelming. We want to pick enough that helps us to guide us through tracking exactly what they— what a client is looking for. There are multiple KPIs that you can pick out of settings where you can really track. It's, it's a little bit overwhelming, but you can track, uh, multiple ways of tracking the KPIs. And I think that sometimes it's best to go in here and really look To see where, where your— where your— what are your goals? So set the goals first and then decide where you're going to analyze. And it's part of what we do when we start to look at the big picture and then start to pick it apart and look at different places like your marketing, like your— and we also try to look at how the people are performing, how the staff is performing. Those are areas we like to look at. How many hours have the attorneys spent on, on the matters and how many hours were billable. So we start to look at those metrics as well, and that's done mostly in lean law. So we don't really find this here unless you're using like a TSheets, but I really highly recommend get the right software. So it's finding the right tool for your toolbox. The same thing when you work with law firms, you want to have that law firm tool. You don't want to be trying to patchwork your system. So I hope that was helpful. I know that was a fast guide through Fathom, and I know there's so much more in that program that you probably want to look at. But if you are interested in learning more, I highly recommend you even reach out to me. I can give you a test drive of QuickBooks Online Advanced. You can get a little peek under the hood to see all the phenomenal features. I didn't even get into where you could bring in batch invoicing and fixed invoices. There's just a lot there that you can do. There's a lot you can automate. There's a lot that you can Take off the hands of manual data entry and just start to speed up the process. And you can start to layer other apps on top. You get that sweet stack that works harmoniously. That's the best way to go forward with automating your firm. I hope that's helpful. Reach out if you want more information. And on that note, I hope you all have a wonderful week. Bye now.