We are almost at the end of our discussion with regard to the fourth area of the five areas that make up every business in the world which is the area of “billing.” As you know, the other four areas are: “Clients” or “customers”; “Administration”; “Getting the work done”; and “Collecting.”

Last week we began speaking about the Lotus form we use in our office to keep track of per biller time in our firm entitled “Total Production and Total Paid - Month, Year.” You will see the form set out in this column.

Let’s discuss in more detail each topic in this form.

1. Monthly Production: You know we get this amount off our Detail Receipt Allocation Report from our TABS3 computerized billing system. This monthly production includes all dollars that have come in from any time that was put in by this particular biller whether it was hourly rate or contingent fee.

2. Multiplied by 33 1/3%: Our formula in our office is that everyone gets as part of their compensation formula 1/3 of everything that is billed and collected from their time that is paid to the firm.

3. Production: this is a hybrid production column that is very rarely ever used in our firm, but in some instances you might actually get in a referral fee that would not have to be split between the firm and an individual lawyer but rather could be paid in some other percentages. The example we use for this referral fee would be paid 100% to the lawyer who received the fee.

4. Multiplied by 100% Referral Account: This is the explanation of what percentage we used with regard to this hybrid production column.

5. Responsible Attorney: Again, you understand that in our law firm we pay 15% of everything that is produced by anyone in our firm to that person as part of their compensation. These dollars are shown in this column.

6. Multiplied by 15%: this is part of this idea of being able to share money with those individuals who produced the business for the law firm. In our case, it is 15%.

7. Earned Salary (Production % + Responsible Attorney): This column shows the combined total on a monthly basis of the 33 1/3% from each individual’s production plus whatever responsible attorney time they would have for that particular month.

8. Net Draw Taken (Including Salary Deducts): Net draw taken means whatever draw that particular individual has taken on a particular month. We have a tendency in our office to do draws and then to reconcile those draws on a quarterly basis so the proper amount of taxes can be paid. The draws are set at a percentage of what the total amount of earned salary is going to be so it is just like getting a paycheck on a bi-weekly basis, and then having the taxes be paid on a quarterly basis.

9. Previous Month Reconciliation Less Draw Repay Plus Salary Due: This category is utilized where someone is running a deficit and where they have had to repay a draw because they have taken more draw than they have actually earned, and then that month’s salary is added to the net draw taken.

10. Salary Due for Month: This is the category that shows additional salary that is due over and above the draws that an individual has taken.

11. Monthly Net Salary = Earned - Draw - Reconciliation: On a monthly basis, we set out a net salary for each employee and that is equal to the amount of earned salary that they have, which is 33 1/3 % of their production and 15% of their responsible attorney minus any draws they have taken and minus any reconciliation that we have done with regard to having to pay taxes.

12. Yearly Net Salary Previous Month Owed: This shows a running total of where someone stands on a yearly basis with regard to the amount of money they have taken out of the firm that would be above or below their draws.

13. Yearly Net Salary (Deficit): Sometimes attorneys in our office will run a deficit because they are actually getting paid more than they are actually earning. This has a tendency to level itself out as the year goes on, but, sometimes deficits can be carried over to a subsequent year and made up in the following year.

14. Less Profit Allocation to Owners: If you are able to hold your overhead under a certain percentage, there may be some profit that can be allocated to the owners of the firm. The variables with regard to this calculation are as follows:

33 1/3 % for production + 15% for responsible attorney = 48 1/3 % for salaries. This leaves 51 2/3% for overhead and profit to the owners of the firm. If the overhead runs over 51 2/3%, there is no profit to the owners and the owners are going to have to eat some of the overhead and potentially some of the salaries to employees. On the other hand, if the overhead runs under 51 2/3%, that percentage, which is the difference between 51 2/3 and whatever the overhead percentage is, goes to the owners of the firm as profit.

Next week we will finish talking about the remainder of the categories in more detail about the form “Total Production and Total Paid.” This is a very interesting sheet because it tells you who is producing what and how much they are getting paid.

Talk to you next week!

Jim Wirken is a civil trial attorney and the Chairman of the Board of The Wirken Law Group in Kansas City.