Monday, November 2nd, 2015
By Gideon Grunfeld
There are two fairly obvious benefits to projecting revenues. One is cash flow; the second is work flow. Knowing how much money you expect to generate in the next 30, 60, or 90 days helps identify potential cash flow problems. That in turn can act as an early-warning system for a firm’s collections efforts. Likewise, revenue projections will help identify whether one lawyer, team, or department is likely to be overloaded while other lawyers don’t have enough to do. And that information can help a law firm allocate work more rationally.
Despite these benefits, a surprising number of law firm partners struggle to project revenues. Many aren’t used to being asked, and those for whom this is a new requirement often object to doing so. They let their perfectionist tendencies get in the way. They will confuse an inability to project revenues precisely with not being able to project them at all.
In addition, some partners see the process of projecting revenues as a threat to their autonomy. Their unspoken logic seems to be this, “you should trust me to handle my work, and asking me to project what will happen in the matters I am handling is none of your business.”
Partners are right to suspect that revenue projections are a potential threat to autonomy. This is especially true for the folks whose future performance isn’t likely to meet their projections. And that’s the primary reason to resist partner objections and require partners to project revenues.
It’s a matter of accountability. Business owners should be held accountable for the financial results of their activities. All things being even, those who generate more and predict more accurately should be recognized and rewarded for doing so. And business owners wouldn’t be doing their jobs if they weren’t sufficiently aware of their case load to make certain educated short term guesses.
And that is the unfortunate situation that applies to many law firms. The partners—even many equity partners—don’t take on the full responsibility of being business owners. They are partners in name only. And in the dynamic and unforgiving climate facing more and more law firms, that’s a recipe for financial disaster.
This is a particularly important subject to address this time of year. If you want to start 2016 on a sounder financial footing, you should have a good sense of what revenues will be generated during the first quarter. For many firms, January and February are their worst months for collections. So it is doubly important to project first quarter revenues accurately. And if you want do project revenues systematically, the beginning of November is a good time to begin the process of asking partners to project revenues.