Accounting in a law firm is stressful. Truly for any business, the financials can make you cringe, but law firms add in another layer with trust accounting.
Because of the stress with accounting, many law firm set their sights low. The goal of accounting is more like survival. You hope to get through tax season, avoid an audit and make sure enough money is in the bank to keep everything afloat.
It’s understandable because accounting is rarely presented in a way that resonates with a law firm. Accounting has its own language of debits, credits and compliance which contrasts with a lawyer’s goals of growth, justice and profit.
At Kahuna Accounting, we’ve taken a strong effort to not focus on compliance, but on strong, thriving law firms.
The Data Driven Law Firm
Unfortunately, when your law firm views financials as a necessary evil to endure, you miss out on a goldmine of potential opportunity.
Law firms today are winning with data. By using cloud technology, data is moving faster than ever, giving forward-thinking firms a huge edge in transparency and predictability.
Being data driven is not having numbers for the sake of numbers. Data driven law firms are fueling growth with data.
Data drives growth because it allows you to look forward
Think about it. As much as you want to plan ahead, you can’t make proactive decisions when your data lags behind. Data is essential for decision-making. Can you hire that associate? Can you afford an operations manager? Can you invest in a building?
All these decisions and countless others depend on real-time financial information and the ability to predict where the firm is going.
Data drives growth by focusing on 80/20
Having numbers is great, but most of the time accounting presents a bunch of numbers that are completely meaningless to your goals.
Yes, it’s important to have a set package of reports that include:
- Balance Sheet
- Cash Flow Statement
- Profit and Loss Report
- Accounts Payable Report
- Accounts Receivable Report
But your data-driven mindset can’t stop there. The true story is when you zoom in and find the key numbers that truly move the needle.
The 80/20 principle states that 80 percent of the results come from 20 percent of the effort.
In every law firm there are key numbers that are the true indicators of success or failure. A data-driven law firm knows their key metrics intimately, tracks them and consistently improves them.
Data Drives Growth by Focusing on Goals
The most important step in building out your financial system is determining where you are going. Just like using a GPS device, the first step is to map out where you are now and where you want to go.
What is the destination you are moving toward?
Your financial reporting should be holding you accountable to benchmarks you have set out to achieve. Now, because of data, you are not just taking actions, but have a purpose in everything you do.
Your real-time reporting will keep you on track and point out when you’re missing the mark.
How to Become Data Driven
While it sounds great, many law firms are not reaching this level of financial visibility. This happens for a variety of reasons.
- Integrated Systems
Most law firms have different systems for billing, timekeeping, payroll, accounting, bill payment, and the list goes on and on.
All of these systems have data that paints part of the picture of where the firm is going. As a lawyer, it’s not your job to figure out the systems and how they work together.
But what you can do, is work with someone on the financials who has familiarity with your systems. The good news is, while the list of tools is overwhelming, they generally work well together.
2. Define Where You are Going
All the data in the world won’t help if you don’t have a clear plan. The act of looking at your numbers and projecting them into the future is extremely clarifying.
A simple exercise is to take the last 12 months of financial history and then build out a budget for the next 12 to continue as you are. Where would you end up? Is that where you want to be?
If not, you can make adjustments to your plan. Now you are moving forward with purpose, not aimlessly. When you have a clear destination, data will be your map to get there.
3. Make Data a Priority
The biggest obstacle between a typical firm and a data-driven, growth-minded firm is an aversion to numbers. So many people have had bad experiences with accounting that you will shut down just thinking about it.
But when you realize data can be a strong asset to helping you get to where you want to go, you can stop avoiding the subject and start prioritizing the numbers.
Take it from Lex Tech’s own Chelsey Lambert who gained a new sense of confidence when hiring the professionals at Kahuna Accounting
When you make data a priority you will have peace of mind about where the firm stands and clear accountability on where you are going.
Accounting may never be your favorite thing, but you will love winning with data.
Best of all, if you’ve neglected your financials or never truly felt the power of knowing your numbers, Kahuna Accounting is helping law firms get a fresh start on their systems. Just head here and set up a call with their professional team.