In this presentation, Linda Artesani of Artesani Bookkeeping advises law‑firm owners on how to use the quiet end‑of‑year period to clean up their books, set financial goals for 2021, and track key performance indicators (KPIs) that drive profitability and stability. She emphasizes the importance of cash‑flow management, building a rainy‑day reserve, and reducing accounts‑receivable (AR) aging. Specific KPI targets are discussed: profit percentage (10‑15%), AR aging under 30 days, cash on hand to cover 30‑90 days of operating expenses, labor percentage (payroll as a share of gross sales), and realization rates (collected fees vs. billed fees). Artesani recommends practical tactics such as moving cash into separate savings or CD accounts, using credit‑card payments to accelerate collections, and leveraging QuickBooks Online Advanced (and Relay) to automate KPI calculations. The talk also covers budgeting, forecasting, and goal‑setting for the upcoming year, positioning the bookkeeper as a trusted partner who helps attorneys feel financially secure and able to focus on their legal work.
Chapters
Hi, Linda Artesani, Artesani Bookkeeping. We're coming, winding down the end of the year. So we've already passed the mark of December. And we know that this kind of flies by. It tends to be a little bit of a quieter time. You don't get a lot of people coming to you really with help with wanting them to have you help them with messy books. They don't really start to look at that until the next year, January. So it is—
tends to be quiet.
People take vacation. This is the perfect time to start to really look at your clients' records, dive in, dig in, and see where you can help them. Start to look at the KPIs, start to select some and figure things out for them. Start to help them with budgeting, start to help them with forecasting, start to have the conversation about goals and and setting goals for 2021. And this year has been pretty unique in the fact that some of the law firms are thriving. Some of them are sitting back and they've got a ton of work, but the courts have been closed. So they're waiting to get into the courts to really get their records and get the court cases moving. So they might be taking in money into trust, holding it, but they haven't been able to recognize it much as revenue. We've really had to sit down and have those client conversations to figure out what can we do to bring money in the door. One of the places that I tend to look at with my customers is, especially this year, it's been an easier conversation to say, hey, you've had a prosperous year. Really think about cash flow, how the money's moving in. Again, we go to that AR, go to accounts receivable, and start to see what's sitting there. It's not been collected. But also think about putting money aside for that rainy day fund. It's really important in this year, if any years, has kind of been a resounding slap in the face to know that we need to plan for that. Put money away, put money aside. It's really important. Don't drain the bank account down at the end of the year, which some people do. Used to see that a lot in my construction firms in my— back in the days of being a generalist, they would just drain it down to nothing and be like praying that their checks wouldn't all clear at the same time. And it was just not a fun time. to work in that, that typical, that industry. But with attorneys, they tend to have a good chunk of change in their checking accounts. And it's really good time to maybe open up maybe a CD, a money market, something, maybe just a plain old savings account, maybe just go to Relay and add a Relay account so that you have a place where you've taken the money out of operating and it's there. Maybe it's just the money that you had as profit. So analyzing cash flow, definitely a place that you need to go. Analyzing cash and getting cash in the bank and having that client conversation is important. Looking at the AR— I know I sound like I'm, you know, beating the drum on this, but it's so important when you look at a client's books. New clients come to me and they usually have a ton of AR just sitting there, and I'll say, how come this is in the 60 to the 90-day category?
We want to get that down to just under 30 days.
So I want that money moving in, whether we start to implement being paid By credit card, which is a conversation that is a lot easier as well this year because of the pandemic. Nobody wants to touch money and they just want to get the money flowing in. And it's really easy for a client to click that box and then pay by credit card, or you just need to raise the rates a bit to cover the fees. Don't be afraid of the fees. That gets that cash flow moving. One of the KPIs we always track is profit percentage. It's a number that explains the percentage of your revenue that's profit. And a good target is about 10 to 15%. So I'll take you into the file and show you how we actually calculate that. But that's after all the partners have been paid market rate. So it's a good conversation to have with your clients. What is market rate? How do you figure that number out? And we've got a lot of those tools right inside of QuickBooks Online Advanced, which is why I love my workflow. Obviously, Accounts receivable, I mentioned, you know, over 30 days is just a metric I don't want to see a high number in. How much cash is there sitting there waiting for you to collect? Even if you have to make a deal and collect a smaller number, it's getting that cash or capital into the firm, really super important. How much cash on hand is another place that you want to take a peek at and see how much money is there that you have available. If you needed to run the firm without money coming in the door, I like to see like 30 to 90 days worth of how much does it take to run the firm. So you analyze that. What's that metric of exactly what it costs to run the firm with the pay— the payroll, which is typically your highest expense in a law firm, and all the other pieces that come to running the firm, your rent and things like that. How much does it cost and what do you need to run that firm without any revenue coming in the door for 30 days? How about 60 days, 90 days? That's your target. You really want to have that there. You might want to look at your labor percentage. It's a metric that relates to the overall payroll expense. How much of your firm's payroll is a proportion of your gross sales? It's, it's like I said, the highest amount, and your highest really expense for your firm is your payroll. And of course, we talked about realization rates in the past. I will link back to the other article on that, so I won't go really deep on that, but it's your collected fees. Because attorneys and law firms, they like to write down a lot of the monies that they've— they have this amount and they, they, they spent the time on a file, and then they look back and they go, oh, I can't bill that client that. They write it down. So what's the real rate, your realization rate? That's just a few of the KPIs that I like to track for the law firms that I work with. So let me take you into the file and share my screen and just take you through what steps you need to look at. It's a simple math problem, but what would you look at to get that profit percentage number for your client? And then how can you help them understand what that exactly is? Don't forget, attorneys, they get a little embarrassed when you talk to them about the financial items, and you just have to remind them, look, I can't go into court. I don't know all the things you know about being an attorney. I just know this stuff. It sticks in my head. This is what what I love to do. I love to analyze data as much as you love to do what you do. So let us be the person that helps you with that. And it just makes it easier for them once they realize that they can relax a little bit and know that they've got someone really, really smart and knows the industry. They can sit back and they can sleep at night, not to worry about that. That's what we're here for. We help them sleep at night, take a vacation. That's our job, right? Let me take you in. I'm going to show you how to do that profit percentage.
Well, the way to calculate this gross profitability. It's very simple math, and this is an S corp firm that the lawyer salary is here. I'm just going to take the money that was brought into the firm as revenue, and I'm going to divide it by the bottom line, right, the money after all the expenses have been calculated in. And in this case, it comes to 1.44%. So that's not really in that category that I was looking for, right? Now I need to start to look at what is going on here. Did the attorneys pay themselves that much? This is a demo file. As you can see, there's not a lot of high numbers in here, and I think if I had done it on all the data that's in here, kind of need to throw some more things in here for the current year. But you also have to remember that if you're looking at a firm that's not an Inc. and it's an LLP or an LLC where there's partners, you want to be sure that you start to look at What do the attorneys pay themselves? Because that's going to set up in the balance sheet under the partner equity account. You need to factor that number in because that's also— even though it's not an expense, it's a draw out of the firm. It took the money out of here, and that's part of the operating. And this is where you'll see a lot of times that the attorneys pay themselves quite generously, but also at the expense of the firm. So if they're looking to get that number up, maybe they're looking at maybe a loan or something like that, you need to get those figures up, and this is how you'll be able to help them with that. This is really the time of the year that you want to start to capture the data. You want to start to organize your law firm data. You want to get involved with the partners, have that conversation, that dialogue, figure out what their goals are, start to set the goals for next year. It's not too late to do that. Start to help them look at the data points they can track. We got those custom fields working for us now, so we're going to get that as part of the conversation. Start to have the conversation, the, the meetings with them to start to get them on that path to a prosperous 2021. So on that note, I wish you all a wonderful, wonderful, fun time checking out, adding those advisory services. It's something we really love to do at our firm. If you have any questions, Feel free to reach out. If you're a law firm saying, I need to do this, I need to work on growth and work on getting my firm and my records orderly, reach out to us. We are more than happy to help. We've got the team behind us to take on that new work. Thank you so much, and we'll see you next week. Bye now. Bye.
