Why do profitable law firms struggle to pay bills? Ryan Kimler explained that many law firms show profits on their income statements yet still struggle to cover their expenses. Profit is what appears at the bottom of the income statement and is used to calculate taxes, but it does not always reflect the actual cash available in the bank. Below-the-line activities—such as debt payments, large purchases, or Read More

What is the difference between realization rate and collection rate in a law firm? Ryan Kimler explained that the realization rate refers to the actual billable hours that make it onto a client’s invoice—after any time reductions, write-offs, or discounts. For example, while an attorney may work 40 hours a week, only a portion of that time may be billable after adjustments. On the other hand, the collection rate Read More

Why do law firms consistently underprice their services? Many firms, especially when starting out, focus primarily on securing enough work to stay busy. Over time, they often underestimate their growing expertise and experience, failing to adjust prices accordingly. This mindset issue stems from a fear of losing clients and the responsibility of supporting employees' families. However, even small price increases Read More

What percentage of a law firm's revenue should be allocated to payroll? The ideal target is 40-45% of revenue, which should encompass all personnel-related expenses. This includes administrative staff, billers (paralegals, legal assistants, attorneys), healthcare benefits, 401k contributions, workers' compensation insurance, and any additional liability or disability coverage. Importantly, owner salaries should be Read More

Why is financial planning often overlooked in law firms? Many business owners naturally focus on sales and revenue growth as their primary metrics. When asked about goals, lawyers typically default to discussing case numbers or revenue targets rather than profit or cash flow objectives. The personal nature of financial metrics like owner take-home pay makes these discussions uncomfortable in business settings. Read More

What is the difference between a bookkeeper, accountant, and CFO? A bookkeeper's primary responsibility is tracking all financial transactions in your law firm. They handle incoming and outgoing money, creating initial financial statements like profit and loss statements, balance sheets, and cash flow statements. Accountants take these initial statements, make necessary adjusting entries, and prepare them for tax Read More