Strategies for increasing law firm revenues and margins according to Anaqua
Key learnings from BigHand’s Annual Finance Report can help law firms get ahead of the curve and increase profitability.
Legal technology provider BigHand released their Annual Finance Report earlier this year, compiling the results of a survey of 800 senior legal professionals at mid-size law firms across North America and the UK.
BigHand’s 2024 Annual Law Firm Finance Report shows that law firms revenues exceeded expectations last year, however, profits are still down. This highlights the need for firms to really focus on the ideal metrics to look at when assessing profitability. Revenue can be an indicator, but if viewed in a vacuum, it can also be misleading.
So how do firms ensure a growth in revenue also turns into a growth in overall firm profitability?
Outdated Billing Practices Need Reviewing
The survey results showed that firms underestimate the impact of their billing practices on the bottom line. This occurs when firms have performed work but are yet to see any payment for it. This is a concern for many firms and 64% have said they plan to collect and bill more frequently over the next 12-months to improve lock-up. Tasks that help to improve and shorten the billing cycle include daily practices such as time recording and submitting disbursements and timesheets regularly. Ensuring these are handled efficiently gives the finance team the information they need to generate invoices faster.
The report suggests that all data should be stored in one centralized financial system to allow the firm to surface relevant data, including time records, and examine it for insights into areas of improvement. As the legal technology stack continues to evolve, there is a greater need for connectivity between systems. It is critical that firms ensure their matter management, time keeping, and financial systems are all connected to allow matter/client references, time records, and charges are kept in sync. Only with this level of transparency will firms start to see trends and areas of improvement surface.
Evaluation Required for Write-Off Management
BigHand’s report highlights the pressures that clients are now placing on firms to deliver value and transparency.
- 48% are being asked to use technology to drive efficiency
- 42% to demonstrate the value of their investment
- 76% report an increase in client demand for financial transparency, reporting, and additional discounting
Firms are being pulled in opposite directions, with clients wanting discounts and proof of investment in technology. It’s not surprising that in their efforts to appease and retain clients, some firms might end up losing twice over by increasing firm costs to add technology innovations while also accommodating discounts that come from client pressure.
To move ahead in a positive way, law firms need to focus on investing in technology that has a strong ROI. Most software providers are able to assist firms with an ROI analysis ahead of signing up for a new platform so firms can truly understand the costs, estimated returns, and timeframe for achieving them.
The second important change that firms need to embrace is the ability to provide financial transparency. This goes hand in hand with addressing outdated billing practices and can go a long way to negotiating fair discounts and more realistic work scopes and fee arrangements. 33% of firms surveyed said they a plan to increase their communication with clients about fees to combat write-offs due to unexpected charges.
We’ve seen clients decrease discounts and disputes by using Anaqua’s automated timekeeping software, WiseTime, which provides transparent time records clients are able to review of the works performed. It’s easy to understand why clients are hesitant to accept fees at face value. Traditionally attorneys rely on multitasking and memory to create their timesheet which is notoriously inaccurate.
When clients can see clear, indisputable evidence of the work performed and the time spent, they are much more receptive to the amount charged. In this interview with German and EU patent attorney Michael Fleuchaus, he shares his experience of increasing billings to clients and how this did not result in the loss of any clients, all thanks to the transparent records provided by WiseTime.
More Defined Work Scopes Needed
The percentage of firms that admit to poor – or no– scoping has increased to 25%. Firms are putting new business ahead of good practice and this short-term thinking leads to more complicated ongoing client relationships. As discussed, surprise charges are met with resistance and lead to large write-offs. The key to ensuring long-term client and firm satisfaction is to begin the relationship with clear and defined scope of work and transparent billing practices.
This can sound overwhelming for most firms, as not all of whom know exactly certain types of matters are costing them. This kind of insight only comes from detailed data on hours performed against matters, which usually needs to be automated to be accurate. Relying on attorneys’ memory for timekeeping leads to unreliable records and doesn’t give a firm a true cost of goods assessment that can inform the scoping of future projects.
In our interview with Fleuchaus, he shares his experience in using autonomous timekeeping software to document and assess the costs of the firms products and services. With confidence in their price list, they were able to improve their scoping for new clients and create a mutually beneficial relationship.
Inadequate Time Sheet Management and Time Recording
In addition to the client demand for financial transparency, 28% of firms report receiving requests for real-time financial updates on their matters and a further 30% had requests for matter budgets from clients. This kind of information is impossible to deliver to clients unless the firm has a uniform and efficient way of managing their timekeeping. If a client requests a real-time update on work performed, lawyers can’t be caught rifling through timekeeping notes or trying to review their week by memory.
The fact is that timekeeping is crucial piece of attorneys’ day but thanks to advances in technology, this kind of repetitive work no longer needs to add to their workload. Tools such as WiseTime are autonomous, relieving attorneys of the need to take notes or start and stop timers, and they provide the kind of real-time reporting efficiencies that are in high demand in today’s legal practices.
Client expectations for information transparency have been increasing for years, so it is concerning, but not surprising, that almost half (47%) of firms admit that missing/ late time entry and poor-quality timecards influence profitability.
Poor time recording practices affect every aspect of the business, from burdening attorney’s and assistants with additional manual work to delaying invoicing and often under-billing clients. It is surprising that more firms have not already sought out software to take care of this task. WiseTime was purpose built by attorneys facing this exact problem.
Conclusion
BigHand’s report highlights the pressures law firms face to deliver quality work in an efficient manner. Firms need to focus on investing in the right technology stack to back up their efforts to deliver efficient and accurate reports to clients and improve overall client communications. It is imperative that firms make the investment to ensure they are relying on the right matter management, timekeeping, and financial management systems that are in sync to alleviate data concerns and uncover critical insights.
WiseTime is an autonomous timekeeping software that eliminates the need for manual timekeeping, provides detailed real-time records and has proven to increase utilization and profitability for firms.
To find out more about how WiseTime can alleviate the modern pressures of law firms, improve profitability and increase staff and client satisfaction, contact us today for a demo or begin your 30 day free trial straight away.
