Four Financial KPIs Your Law Firm Should Be Tracking in 2022
While your success in the courtroom may speak for itself, this does not necessarily lend itself to a functioning law firm. This is due to the fact that there are various other factors that you must consider when running your business, such as your financial operations, customer and staff acquisition rates, and marketing strategies. After all, these factors are what band together to give your firm longevity and status within your industry.
Thankfully, there are various strategies you can use to pioneer your firm towards success – including identifying your KPIs. KPIs, otherwise known as Key Performance Indicators, are business metrics used to evaluate the overall performance of your success. As opposed to simply operating on a hunch and assuming your efforts are paying off, assessing your KPIs means that you can use data to drive your success, implement changes and secure a brighter future for your business.
As a result, there are various KPIs you should measure within your daily operations. For example, you should measure staff performance to heighten productivity and battle burnout. However, financial KPIs may be the most useful for law firms looking to enhance their profitability.
With that in mind, here are four financial KPIs your firm should be tracking in 2022.
Profit Margins.
Profit Margins are used to determine how profitable your business is (i.e. how much money you are actually making). According to Ken Wentworth in an article for Business News Daily, knowing your profit margin can “quickly help determine pricing problems. Further, pricing errors can create cash flow challenges and therefore threaten the ongoing existence of your entity”.
To determine your profit margin, you need to subtract your firm’s operational costs (such as payroll) from your total revenue. Many businesses aim to do this at the end of each quarter – but you can also use this method to figure out your monthly profit margin.
Amount of Accounts Receivable (AR).
The amount of Accounts receivable refers to any outstanding funds you have yet to receive from clients. As this can impact various areas of your business, such as cash flow, it’s crucial that you are paid promptly – ideally within 30 days. While most of your customers will pay for your services, studying these metrics may help you identify why there are lags in the process or how you can better protect yourself when met with dishonest clients attempting to dodge payments.
Law Firm Debts.
Many different businesses incur debts during their daily procedures, especially during their infancy. For example, this could include business support loans or credit card bills. As a result, there’s no shame in seeking this kind of support, especially as the legal sector was particularly hard-hit by the pandemic. However, failure to understand or manage debt is one of the key reasons why law firms collapse, making it a key KPI to track in 2022 (and beyond).
Your Current Run Rate V. Projected Costs.
There are plenty of financial KPIs that you can study when trying to keep your law firm afloat. However, the difference between your Current Run Rate (the financial performance of your company as it stands) and your anticipated annual costs. This data will help you determine whether you are on track for financial success in 2022 – allowing you to implement urgent changes when necessary.
Track all of this & more with FinOp Group.
At FinOp Group, we’re passionate about supporting law firms of all sizes as they strive to increase their profitability or get a handle over the fiances. One way in which this goal is achieved is through our FOG Board software.
When using Fog Board, you’ll gain access to an instant visual representation of real-time financial and operational data (the exact metrics you’re looking for when tackling the above KPIs). Even better, you’ll be able to access them wherever you are in the world – from a PC, phone or tablet!
