Getting law firm fee budgets right

Today I reviewed the performance of an Australian client firm for the first half-year to December 31 2011...

They are showing surplus fees generated over budget, but it's a classic case of apparent "success" obscuring a big profitability failing at serious cost to the principals...

The budgets have been set without proper regard to the fundamentals and careful planning...making them easy to achieve by principals doing too much billing themselves.

Budgets for employed lawyers are low...and budgets for paralegals and secretarial support are non-existent...


Far from being in a healthy place after the first six months, the firm is about $600,000 behind where it's capable of being...and that additional revenue would all be increased profit....about $120,000 a principal extra profit for the half-year.

That sort of additional profit can make a very big difference to financial health and to partner morale and lifestyle...it buys some good holidays and school fees for a start.

As usual, when there are issues like this in a firm they show up elsewhere too...and Debtors are again the usual culprit...

Comparing actual average age of Debtors to the target age ranges for the types of work involved, the firm has nearly $200,000 per principal unnecessarily tied up in Debtors.

Some sound engagement management and better credit control follow up would inject this cash back into the firm.

If the firm can lift it's game on profitability, and no reason why it shouldn't be able to like so many other KMS clients, the principals will certainly not want the extra profit simply translated into more capital tied up in Debtors! That would create the age-old scenario of higher tax and less cash to pay it with.

The good news is that it's all very fixable if they are determined to be excellent.