We are continuing to talk about the area of "billing" as the fourth area of the five areas that make up every business in the world. As you know, the other four areas are as follows: "Clients" or "customers"; "Administration"; "Getting the work done"; and "Collecting."

The last two weeks I have been discussing the use of Lotus spreadsheets for both dollars billed and collected and with regard to responsible attorney totals as well as for hours. This week I am finishing this topic on yearly running recaps with regard to dollars billed and collected as well as responsible attorney dollars. Please remember the compensation formula I devised which is number of hours worked times hourly rate times a percentage of collectability. This formula was developed from my previous twenty-three years of practicing law in various settings from being a solo lawyer all the way through being a senior partner in a thirty-four lawyer law firm.

Another thing that we keep track of as I previously stated is who is bringing the business into the firm, and quite simply, this fifteen percent number that goes to whomever produces the legal work for the firm is a great incentive for people to generate legal business for the firm.

Between the guarantee of receiving a third of everything you bill and collect and fifteen percent of everything you produce for the firm, you are simply not leaving very much up to chance. The only chance is what you collect. If you are reasonably aggressive with regard to individual's hourly rates, and bill them out to clients at the level that is appropriate for the position and skill of the individual, you will have a fair system for the clients, and a fair system of compensation for all the people in your firm including yourself.

I like to look at the monthly numbers, I like to look at the yearly running recaps of dollars billed and collected and the amount of money that is adding up in the responsible attorney columns Once I look at it on a monthly basis, and after determining any trends or items that need to be managed, I simply put it in a file, put it in a drawer and get on with the work! Any kind of system you have that allows you to not only see the small picture, but also make projections about the big picture, is a great system for helping you manage your firm.

I have often stated that a calendar year in a law firm's life is like an athletic contest that has twelve periods. In order to win the game at the end of the year, it is important that you look at each one of the twelve periods on its own, and be sure you are winning each period. But, it is equally important to understand that you may not be able to win every period, so you need to look at the trends and the projections. If you can win a majority of the periods, you will win at the end of the year.

One more Lotus sheet schedule that we have in our office takes the information with regard to income and expense and puts it on a schedule that shows each month of each year for the history of our firm. If your firm is in business long enough, I think you would be smart to simply do this sheet for the last five or ten years. What we started doing three years ago was going back and putting on this sheet an indication of what was the best month we ever had over the last decade for that particular month of the year. You can imagine that since 2003 was a record year, we had several first months in that year. Additionally, in 2004 some of those months that had become the best months in 2003 were surpassed by the same months in 2004. So far for the year 2005, we have had the best January, the second best February, the best March and the third best April we have ever had. This is stacking up to be another record setting year. The fact that this is happening to us is not the point, the point is that I know this information and I can use it to manage the firm.

The system we use is very simple, the information comes right off our TABS3 accounting system, and can easily be placed in Lotus schedules. Every month we get a monthly report, every month we get a running yearly report and every month we get a report that compares each month of this year to each month of previous years. Fifteen minutes in review, put it in the file, put it in the drawer and get on with the work!

One other thing we do on these Lotus sheets when looking at income and expense, is to figure an overhead number. This allows us to try to manage overhead on a month-to-month basis and it gives us an idea of what the overhead will be for the firm if everything remains the same for the rest of the year. It is amazing how helpful it is if you know what your overhead is running, because if you are low and you need to spend some money, you feel better about it, and if you are high, you can tighten your belt and not be so free to spend money until your overhead number comes back into line. It has been amazing to me how easy it is to make a decision about whether or not to spend some money when you know exactly where you are, where you have been on that year, how this year is stacking up with regard to previous years, and where you are projected to be at the end of the year. Knowledge is power, and having this information available at your fingertips allows you to make quick decisions with regard to whether or not something is truly worthwhile for you to spend the firm's money.

Next week we are going to talk about yearly running recaps on hours per biller. After seeing what I have said in these last three articles, I am sure you must realize that I think hours are pretty important. I think you will find some of my ideas with regard to these hours quite interesting, and in particular, if you work on contingent fee cases.

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.