Gaining Business Intelligence from Your Firm's Financial Data
As a busy law firm administrator, you already know staying on top of hours billed, managing expenses and monitoring profitability are all important tasks for your firm. However, if that is the extent of how your firm is currently using its financial data, your firm may be missing out on key business intelligence insights that can help position it for future growth. But how does business intelligence help improve your firm’s overall efficiency and performance?
What Is Business Intelligence for Law Firms?
Business intelligence sounds complex, but the term simply refers to technology solutions that combine the software your law firm needs to get the job done with content and tools designed to help analyze firm data.
More than just numbers on a page, business intelligence tools can provide dynamic visual aids such as charts, graphs, infographics and performance scorecards or dashboards, all designed to make metrics more easy to understand and, by extension, more useful for firm decision-making.
When it is done well and used correctly, business intelligence can help your law firm make more strategic decisions that, in turn, improve the bottom line.
Law firms of any size, and with any practice areas, can benefit from analyzing their financial data. Business intelligence can give your firm all kinds of information including:
- Insights into profit margins for specific clients or specific groups of clients
- Tools to spot whether there are any patterns within a specific partner’s or associate’s book of business
- An idea of whether various practice areas are more or less profitable
- A picture of whether expenses are in line with budgeted amounts
How Your Financial Data Reveals a Bigger Picture
Your firm’s financial data does much more than just illustrate whether or not the firm made money for the month, quarter or year.
When you leverage the power of business intelligence, you can see if the firm is performing as well as you think it should. If it’s not, you can examine whether the problem is coming from inefficiencies in processes or workflows, client rates or alternate fee arrangements, expense structures, imbalanced workloads, or something else.
Because using business intelligence tools allow you to capture and analyze different areas of your firm, you can also gain valuable insights into employee or client profitability, helping the firm to make better financial decisions and actions based on actual data. Instead of poring over standard profit and loss statements trying to align income with expenses associated with clients and personnel or office overhead, business intelligence tools can customize and organize the financial data you want and need, delivering that information in a way that is useful for you and your firm.
Instead of simply assuming the only way to increase firm revenues and profitability is by increasing billable hours, business intelligence can help your firm analyze information to spot issues with billing or collections, rates, or leveraging for certain partners or associates or clients. Once those types of issues have been identified, correcting them should result in improved metrics in the future.
More than just reports, business intelligence tools can provide real-time dashboard reporting for accounting and finance functions, so if there are issues with unbilled balances, accounts receivable or timely billing of clients, they can be identified and dealt with early on. Similarly, keeping an eye on expense trends on a daily or weekly basis rather than waiting for monthly or quarterly reports can help firms address outliers and potential problem areas right away.
Incorporating Business Intelligence into Your Firm's Decision-Making
Firms that are slow to adopt business intelligence tools can find themselves stuck in a cycle of financial reports that show the firm is not meeting its profitability goals, but without any insights into why that is the case.
However, as with any kind of business tool, simply implementing a new technology product or solution is not enough; you need to actually incorporate and use the information gleaned.
Business intelligence can be customized for your firm to give you the information you need through a dashboard or through periodic reporting. It’s critical to put some thought into what information you want to receive, but you can also change those categories over time.
If your firm is just getting started with business intelligence, you will likely want to start with some general reports and visuals, showing things such as:
- Billable hours and value
- Client revenue reports for the firm as a whole and by responsible partner or attorney
- Billing and collection reports — including accounts receivable aging reports — by responsible partner or attorney
- Firm expenses and, if applicable, individual partner or associate’s expenses by categories that will be meaningful in firm decision-making
- Profitability by Client or Practice Area – matching revenue to expenses to track indivual margins at these levels
Using the data you are already capturing, your firm can improve the client service experience, improve operational efficiencies, gain a competitive edge and have the information you need at your fingertips to continue generating revenue.