Coach’s Corner: Smooth Operator: Understanding a Law Firm’s Financial Operating Benchmarks By Ed Poll

Ed Poll

The concept of benchmarking – setting up statistical guidelines to identify best management practices – can be a tremendous benefit to law firms. The appropriate financial benchmarks can identify operating deficiencies in the firm and show where you are currently relative to your goals. Financial benchmarking helps law firms improve business effectiveness by tracking profitability, cash flow and collections. Lawyers who understand financial benchmarking can better assess the value they provide to clients, and better reflect it in their bills.

Performance Factors

Benchmarking focuses on profitability, reflecting the value creation dynamic of any business enterprise: Profits equal Revenues minus Expenses, in other words, P = R – E. Although this is a simple equation, there are a number of performance factors that underlie it to determine a firm’s profitability, including: