This is the time of year when we, in Member Services, have numbers on our minds. Odd numbers, round numbers, big numbers, and small numbers. In this case, we’re talking about financial numbers. Each year we review Members’ financials and compile them for our exclusive financial database meeting at our Spring Summit. On the review calls with participating Members, we look at a variety of benchmarks, business indicators and a host of opportunities their numbers reveal to us.
Operating a business requires many tools and resources. One fundamental, but often an overlooked tool, is a comprehensive chart of accounts for tracking revenue and expenses. Starting out, attorneys often skip over setting up this important aspect of their business properly.
Here at the Academy, we see a wide-range of profit and loss statements … everything from the overly complex to so simplified they are lacking crucial information the business owner should know. A chart of accounts should be informative and help guide you with setting goals and budgeting for expenses. You want critical information to help gauge your revenue sources and expenditures, but be careful not to overdo it with too many categories, sub-categories and duplicate categories that track essentially the same items. You want categories that are specific and straightforward so the data is easy to navigate, consider and compare. It should serve as a monthly reference to keep on top of your yearly and monthly goals and expense budgets.
For revenue categories, it is important to break them down into distinct sources of revenue.
For example, in estate planning, the categories we use most frequently are:
Amendments/Restatements, Wills/Ancillary Documents, Living Trusts, Advanced Planning, Medicaid Pre-planning, Medicaid Crisis, Probate, Trust Administration and Corporate work.
The breakdown of these categories helps track the specific revenue sources. This will also help you track the number of cases per category and the return on investment relating to the marketing and promotion expenses to bring that revenue in. Once you have your cases per category, you can then review your average fees per category – a very telling detail on how well you are sticking to your fees. A practice may let some slip here and there, which can have a significant impact if it happens too often.
On the expense side, breaking down your categories is equally important. We like to break down Owner’s Comp, Staff Salaries, Rent, Marketing (6 primary categories with sub-categories), Insurance, other relevant categories and operating costs to see exactly where money is being spent.
What the numbers tell us… On our financial review calls, we discuss a variety of benchmarks and factors that Members’ numbers reflect. We look at Revenue per Attorney and Revenue per Person on Payroll (including attorneys) which tells us if someone is under or over-staffed or what revenue/workload they are staffed to manage. Overhead per Attorney is helpful when you have multiple attorneys and you want to know what it is costing you and how much revenue you expect them to bring in to cover the overhead. Other numbers we discuss include Transactions per Employee, Cost per Client and a slew of other benchmarks that we track.
So what are your numbers telling you? Now is a great time to review your chart of accounts for adjustments and examine what the numbers behind them really reveal to you.
Director of Member Services
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
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