Clio：2024年独立和小型法律企业的法律趋势

2024

publishedbyclio

Tableof

contents

4

INTRODUCTION

6Soloandsmallfirmsversuslargerfirms

7Newthisyear

8Datasources

9

PART1

:THESTATEOFLEGALPRACTICE

FORSOLOANDSMALLFIRMS

11Solofirmsaren’tkeepingupwithConsumerPriceIndex(CPI)increases

13Soloandsmallfirmsareopeningmorenewmattersthaneverbefore

14Billingandcollectionperformanceisstrongamongsoloandsmallfirms,

yetbillablehoursaredropping

16Marginalgainsleadtomajorgrowth

16Keyperformanceindicators

25

PART2

:LOCKUP

27Whysoloandsmallfirmsshouldcareaboutlockup

28Measuringlockup

29Realizationlockup

31Collectionlockup

32Totallockup

34Featuresandworkflowsassociatedwithreducedlockup

37Howsoloandsmalllawfirmscanreducelockup

2|LegalTrendsforSoloandSmallLawFirms

38

PART3

:GETTINGPAIDFASTER

40Soloandsmallfirmsreportstrugglingwithbillingandcollections

43Firmsstruggletobillandcollectpayments

45Onlinepaymentsgetsoloandsmallfirmspaidfaster

48Clientsalsowanttopayonline

50Soloandsmallfirmsaremorelikelytouselegalpracticemanagement

andonlinepaymentssoftware

52Howsoloandsmalllawfirmscangetpaidfaster

54

PART4

:THERISEOFARTIFICIALINTELLIGENCE(AI)

56LawyershavesimilarattitudestowardsAIinthelegalprofession

57Staffingandbarassociationissuesaretopofmindforsoloand

smallfirmlawyers

59SoloandsmallfirmsarereadytoadoptAItechnology

61WhatdofirmswanttouseAIforinthefuture?

63ThebenefitsofAIforsoloandsmallfirms

64DoAIattitudesdifferbetweensoloandsmallfirmsandpotentialclients?

67ThefutureofAIforsoloandsmallfirms

69Clio’sinvestmentinsoloandsmalllawfirms

70

APPENDIXA

:APPDATACOLLECTION

71Appdatacollection

73

APPENDIXB

:SURVEYDESIGN

74Surveydesign

3|LegalTrendsforSoloandSmallLawFirms

Introduction

4|LegalTrendsforSoloandSmallLawFirms

Introduction

Sololawyersandsmallfirmsplayacriticalrole

inthewidermarketforlegalservices.Whether

servingtheircommunitieswitharangeoflegal

servicesorspecializinginnichepracticeareas

thathelpthemstandoutfromcompetitors,thesefirmsareoftendefinedbythetailoredexperiencestheyprovidefortheirclients.Atthesametime,

soloandsmallfirmsenjoytheflexibilitythatcomeswithpracticingontheirownoramongst

asmallerteamwithlessoverheadandorganizationaloversight.

Butthesebenefitsdon’tcomewithoutchallenges.Developingclose

relationshipswithclientsandthecommunityatlargecanalsomean

havingtoprioritizeclientexpectationsattheexpenseofoverallfirm

performance.And,withgreaterflexibilityandlessoverheadcomes

increasedresponsibilityformanagingallaspectsofafirm’soperations—andwithit,theburdenofhandlingroutinetasksthatwouldotherwisefalltodedicatedstaffmembersinlargerfirms.

Thesechallengesareevidentinsoloandsmallfirmperformance.

Whilesoloandsmallfirmsareopeningmorenewmattersandbillingandcollectingmorethanever,lookingatthisperformancewithin

alargercontextindicatesthatsoloandsmallfirmsareonlymakingmodestgainsinoverallperformance—and,insomecases,being

outpacedbylargerfirmsinperformanceareaspreviouslydominatedbysoloandsmallfirms.

Invoicingandcollectingpaymentspresentanotherchallengeformanysoloandsmalllawfirms.Whileweseemanysoloandsmallfirmsperformingwellwhenitcomestoinvoicingandcollectingpaymentsearlyon,manyothersstillstruggletobillorfollowup

onoutstandingpaymentsinatimelymanner.Thesechallenges,

forthosewhorecognizethem,presentanimmenseopportunitytoharnessthepowerofpaymentandcollectionsolutionsthathelplawfirmsgetpaidfaster.

5|LegalTrendsforSoloandSmallLawFirms

Artificialintelligenceoffersanotherpotentialopportunityforsoloandsmallfirmsseekingwaystoautomatetheirprocesses.Perhapsunsurprisingly,thereissignificantappetiteamongstthesefirmstoadoptAItechnology—and,forthosewhodosoquickly,thepotentialfortransformativeimpact.

TheLegalTrendsforSoloandSmallLawFirmsreportlooksatwhat

distinguishessoloandsmalllawfirmsfromlargerpractices.Sincenoone-size-fits-allmeasureofsuccessexists,thisreportprovidesinsight

intokeytrendsacrossmultipleperspectives—includingfinancialperformance,productivity,andclientexpectationsregarding

onlinepayments.

Byanalyzingtheseinsights,weidentifywheresoloandsmalllawfirmsoftenfacetheirgreatestchallengesandhowtheycanworktowardovercomingthem.

SOLOANDSMALLFIRMSVERSUS

LARGERFIRMS

Thisreportdefinessololawfirmsasthosewithonelawyer,and

smallfirmsasthosewithtwotofourlawyersandlegalprofessionals.Todistinguishtrendscharacteristicofsmallbusinessesinlegal,

wecomparethemtoapooloflawfirmswithlargerheadcounts,

referredtoas“largerfirms”throughoutthereport.Thesearebroadgroupstocompare,butindoingso,we’vebeenabletoshedlight

onimportanttrendsdistinguishingthesecohorts.Whilenofirmsizeisobjectivelybetterthantheother,thereisnodenyingthatasthe

structureandmakeupoffirmsdiffer,thecircumstancesforthosewhoworkinthemdifferaswell.

However,thefindingsinthisreportdon’tjustapplytosoloandsmalllawfirms—theycanbeusefulforanyfirmthatoperatessimilarly,

withloweroverheadandlessmanagerialsupervision.

6|LegalTrendsforSoloandSmallLawFirms

NEWTHISYEAR

We’veintroducedanumberofnewanalysesforthe2024LegalTrendsforSoloandSmallLawFirmsreport,summarizedasfollows:

EXPANDEDANALYSISOFTHESTATEOFLEGALPRACTICE

We’vebroadenedouranalysisofbusinessperformancetoincludedataasfarbackas2016.Thisexpandedhistoricalviewallowsustoidentifylonger-termtrendsthatprovideamorerobustcomparisonofhowsoloandsmallfirmshaveevolved—andputsintoperspectivemorerecentchangesrelativetopastperformance.

ANEWMETRICFORFIRMPERFORMANCE:LOCKUP

We’veintroducedtheconceptof“lockup”asameasureoflawfirm

cashflow,whichwebreakdownacrosseachfirmsize.Thismetric

includesbothrealizationlockup,whichlooksathowmuchofafirm’s

revenuesitsinanunbilledstate,andcollectionlockup,whichmeasureshowmuchofafirm’srevenuehasbeenbilledbutremainsunpaid.

Reducingtotallockupincreasescashflow,whichisinturnkeytoinvestinginbetterlawfirmprocesses.

PERCEPTIONSONAIINLEGALPRACTICE

Inoursurveysoflegalprofessionalsandthegeneralpopulation,

we’veundertakenanextensivestudythatlooksatnewimportant

perspectivesontheuseofAIforsoloandsmalllegalpractices.

WithAI’srapidearlypublicadoption,thisdatagivesinsightinto

wherethelegalindustryisatincomparison,andwherethegreatestopportunitieslieforfutureinnovation.

7|LegalTrendsforSoloandSmallLawFirms

DATASOURCES

The2024LegalTrendsforSoloandSmallLawFirmsreportusesarange

ofmethodologicalapproachesanddatasourcestodeliverthebest

insightsaboutthestateoflegalpracticeandstrategiesforfuturegrowth.

CLIODATA

We’veanalyzedaggregatedandanonymizeddatafromtensofthousandsoflegalprofessionalsintheUnitedStates,segmentedbasedonfirmsize,toobservedifferencesinusagepatternsamongsolofirms,smallfirms,andlargerfirms.Thisdataprovidesimportantinsightsintohow

technologyisbeingusedbylegalprofessionals,aswellasitsimpactonfirmperformance.

SURVEYOFLEGALPROFESSIONALS

Wesurveyed1,446legalprofessionals,segmentedbasedonfirmsize,todistinguishandcompareresponsesbetweensolofirmsandothercohorts,fromMay31toJuly20,2023.Thelegalprofessionalswe

surveyedincludedlawyersaswellassupportstaff—suchasparalegalsandadministrators—whoareengagedinthemanagementsideof

theirpractice.

SURVEYOFTHEGENERALPOPULATION

Wesurveyed1,012adultsintheU.S.generalpopulationfromJune13toJune22,2023.Thissurveywasdesignedtogaugeattitudes,opinions,preferences,andbehaviorsregardingthelegalprofessionamong

individualswhohavehiredlawyersinthepastorwhomaybecome

potentiallegalclientsinthefuture.ThissampleisrepresentativeoftheU.S.populationbyage,gender,region,income,andrace/ethnicitybasedonthemostrecentU.S.censusstatistics.

8|LegalTrendsforSoloandSmallLawFirms

Part1

Thestateoflegalpractice

forsoloandsmallfirms

9|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

BylookingataggregatedandanonymizeddatafromtensofthousandsoflegalprofessionalsusingClio,we’vebenchmarkedmajortrendsinbusinessperformancethroughoutthelegalindustrysince2016.

Forlawyersinsoloandsmallfirms,thisdataprovidesvaluableinsightintounderstandinghowtheirbusinessescomparetoothersinthe

industrywhileidentifyingkeyfactorsforassessmentandimprovement.

10|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

SOLOFIRMSAREN’TKEEPINGUPWITH

CONSUMERPRICEINDEX(CPI)INCREASES

Forconsumers,theincreasedcostofgoodsandservicesandrisinginflationrateshavebeenevidentthroughout2023andinto2024.Thishasbeenthecasewhetherpurchasinggroceries,officesupplies,

orlegalservices.

Lawfirmsareundoubtedlyexperiencingtheimpactofinflation,andmanyhaveadjustedtheirhourlyratestocompensateforeconomicchanges.

Serviceproviders—includinglawyers—arealsoundoubtedlyexperiencingtheimpactofinflation,andmanyhaveadjustedtheirhourlyratestocompensateforeconomicchanges.

However,manylawyersarenotincreasingtheirhourlyratesrelativetotheConsumerPriceIndex(CPI).TheCPIhasincreasedby29%

since2016and,whilelawyersinsmallfirmshavekeptpacewiththisincrease,largerfirmsfallslightlybehindwitha28%increase.Lawyersinsolofirmsarestrugglingtokeeppace,havingonly

increasedtheirhourlyratesby25%since2016.

11|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

40%

30%

20%

Hourlyratesinlegal

375

350

325

275

250

225

$345

$328

307

$288

29%

29%

28%

25%

Withaveragesololawyerhourlyratesfailingtomatchinflation,many

solosmaywanttoconsiderarateincrease.However,raisingratescan

comewithchallenges,particularlyamongsolofirmsthatserveindividualclientsordedicatedcommunities.Forexample,solofirmsmayfeelthattheyaremorelikelytoadverselyimpactexistingclientrelationshipsor

makethemselveslesscompetitiveamongotherfirmswhooffersimilarservices.Insomecases,thesefirmsmaybebetterservedbynotraisingtheirrates(orbyraisingtheirratesataslowerpace).

12|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

SOLOANDSMALLFIRMSAREOPENING

MORENEWMATTERSTHANEVERBEFORE

Forsoloandsmallfirmsinparticular,thenumberofnewcasestheytakeoncanofferakeymeasureoftheirsuccess.Itnotonlytellsuswhetherafirmistakingonmorenewclients(orrepeatclientswithnewlegalissues)buthowmuchworkeachfirmmemberisabletotakeon.

Ofthosewhobilltheirtimetoclients,soloandsmallfirmmembershavetakenonmorecaseswhencomparedto2016.Largerfirms,ontheotherhand,aretakingonfewernewmatters:comparedto2016,theyaretakingonnearly8%fewermatterspertimekeeper.

Soloandsmallfirmmemberswhobilltheirtimehavetakenonmorecasesovertimewhencomparedto2016.

Newmatterspertimekeeper(relativeto2016)wsolofirmssmallfirmsLargerfirms

40%

30%

20%

22%

17%

8%

13|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

Consideringthatbothsmallandlargerfirmsarelikelyspreading

theirlaboracrossawiderbaseofemployees(includingparalegals

andadministrativestaff),thesefindingsareespeciallynoteworthy

forsolopractitioners.Sololawyersarenotonlytakingonmorenew

cases,butthey’realsodoingsowithreduceddependenceonparalegalsandotheradministrativestaff,suggestingthatthey’rediscovering

efficienciesthatallowthemtotakeonmorework.

However,takingonmorecasesovertimedoesnotnecessarilyindicatethatsoloandsmallfirmsareoutperforminglargerfirmswhenwelookatoverallbillingandcollectionperformance.

BILLINGANDCOLLECTION

PERFORMANCEISSTRONG

AMONGSOLOANDSMALLFIRMS,

YETBILLABLEHOURSAREDROPPING

Comparedto2016,soloandsmalllawfirmshaveonlyexperiencedminorgrowthinthenumberofbillablehourscapturedbytheiremployees.

Smalllawfirmshavecaptured8%morebillablehoursthanin2016,whilesolofirmshavecapturedjust1%more.Bothsoloandsmallfirmsalsoappeartobeexperiencingadecreaseinthenumberofbillablehourscapturedcomparedto2016.

Thisperformancetrailssignificantlybehindthegrowthenjoyedbylargerlawfirms:since2016,thesefirmshavecapturednearly25%morebillablehours.Onereasonforthiscouldbethatdespitetakingonfewernewcasesduetothetypesofclientstheyserve,largerfirmsmaybemorelikelyto

workwithlargerorinstitutionalclientsonanongoingbasisandopeningfewernewfilesasaresult.Thisislikelyincontrasttosoloandsmallfirms,whicharemorelikelytoworkwithindividualclientsonmorediscrete

legalissues.

14|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

Bothsoloandsmallfirmsalsoappeartobeexperiencingadecreaseinthenumberofbillablehourscapturedcomparedto2016.

Billablehours(relativeto2016)wsolofirmsnsmallfirmsnLargerfirms

30%

20%

25%

8%

2%

Despitetheminimalgrowthinbillablehoursamongsoloandsmallfirms,intermsofrevenue,lawyersinsoloandsmalllawfirmsareactuallybillingandcollectingmorethaneverbefore.Sololawyersarebillingover75%moreandcollectingover80%morerevenue

thanin2016,whilesmallfirmlawyersarebillingover90%moreandcollectingnearly100%morethanin2016.

15|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

Evenwhenadjustingforinflation,solofirmsarebilling38%moreandcollecting42%morerevenue,whilesmallfirmsarebilling49%moreandcollecting55%morethanin2016.

Billedamount(relativeto2016)collectedamount(relativeto2016)

solofirmssmallfirmsLargerfirmssolofirms(adjusted)*smallfirms(adjusted)*Largerfirms(adjusted)*

50%

121%

91%

77%

72%

49%

38%

50%

134%

99%

83%

83%

55%

42%

MARGINALGAINSLEAD

TOMAJORGROWTH

Inadditiontoincreasesinhourlyrates,keybusinessmetrics

helpexplainwhysoloandsmallfirmsareexperiencinggrowth

inbilledandcollectedamountswithouttakingonmanymore

cases.Primarily,thishastodowiththefactthatthesefirmsare

findingwaystocapitalizeontheirbillablehourslikeneverbefore—andyetwithstillmuchuntappedopportunitytoimprove.

KEYPERFORMANCEINDICATORS

Clio’skeyperformanceindicators(KPIs)providebenchmarkinsightsintohowlawpracticesareperformingovertime,givingfirmsinsightintohowtomeasureandimprovetheirperformance.

16|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

EachKPIsignificantlyaffectsthenext,andwhenlookedattogether,theytellushowwellabusinessisperformingintermsofitsearningpotential.

Lawfirmsseekingto

improvetheirrevenue

shouldpayattention

tothreeKPIs

•Utilizationratemeasuresthepercentageofaneight-hourworkdaythatgetsputtowardsbillablework.

•Realizationratemeasuresthepercentageofbillableworkthatgetsinvoicedtoclients.

•Collectionratemeasuresthepercentageofinvoicedworkthatgetspaid.

17|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

EachKPIsignificantlyaffectsthenext,andwhenlookedattogether,theytellushowwellabusinessisperformingintermsofitsearningpotential.Forexample,evenifalawfirmhasahighutilizationrate,ifitsuffersfromlowrealizationandcollectionrates,itlimitshow

wellthatlawfirmcancapitalizeontheworkperformedbyitsstaff.

SOLOANDSMALLFIRMUTILIZATIONRATESAREGROWING—BUTTRAILINGBEHIND

THEUTILIZATIONRATESOFLARGERFIRMS

Since2016,utilizationrateshaverisensteadilyforbothmid-sizedandsmallerlawfirms.However,amongmid-sizedfirms,theyear-to-yearincreasesinutilizationrateshaveconsistentlyoutpacedthoseinsmallerfirms,aligningwiththesignificantincreasesinbillablehours.Thisindicatesthatlawyersinmid-sizedfirmsarefindingmoreeffectivewaystostreamlinetheirworkdaysand

putmoretimetowardbillablework.

Largerfirmsenjoyaverageutilizationratesthatare10%higherthansmallfirmsand15%higherthansolofirms.

Furthermore,whilelargerfirmshaveenjoyedyear-over-yearincreasesinutilizationrates,soloandsmallfirmsexperiencedsetbacksin2020,likelyduetochallengesassociatedwiththeCOVID-19pandemic,whichmayhavefurtherhamperedtheirgrowthinthisarea.Overall,solofirmshaveonlyincreasedtheirutilizationratesby3%since2016whilesmallfirmshaveincreasedtheirutilizationratesby5%.Largerfirms,ontheotherhand,haveincreasedtheirratesby12%,explainingwhylarger

firmsarecapturingmorebillablehoursthansoloandsmallfirms.

18|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

utilizationratesolofirmssmallfirmsLargerfirmsAllfirms

50%

40%

30%

20%

20162017201820192020202120222023

LARGERFIRMSARECATCHINGUPONSOLOANDSMALLFIRMREALIZATIONRATES

Since2016,soloandsmallfirmshavehistoricallyoutperformed

largerfirmsontheirrealizationrates—untilrecently.In2021,largerfirmrealizationratescaughtupwithsolofirmrealizationratesand,in2022,matchedsmallfirmrealizationrates.Asof2023,firmsofallsizeshadarealizationrateof86%.Solofirms,inparticular,enjoyedanincreaseof3%between2022and2023,suggestingthatthesefirmsareactuallyinvoicingmoreoftheirbillablework.

Overall,soloandsmallfirmshaveenjoyedsimilaroverallincreases

intheirrealizationratessince2016.Soloshavemanagedtoincrease

theirrealizationratesby9%since2016whilesmallfirmshaveincreasedtheirrealizationratesby7%.Still,theseimprovementsoutperformed

theimprovementsoflargerfirms,whichhaveincreasedtheirrealizationratesby12%since2016.

19|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

Largerfirmrealizationratescaughtupwithsolofirmrealizationratesand,in2022,

matchedsmallfirmrealizationrates.

RealizationratesolofirmssmallfirmsLargerfirmsAllfirms

80%

70%

20162017201820192020202120222023

20|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

COLLECTIONRATESAREIMPROVINGFORFIRMSOFALLSIZES—BUTNOTBYMUCH

Whilecollectedamountstellusalotabouthowmuchrevenueafirmcollectsforeachofitslawyers,it’salsoimportanttoconsideroverallcollectionrates—thatis,thepercentageofinvoicedworkthatactuallygetspaidforbyclients.Firmsthatcollectasubstantialamountof

revenuebuthavelowcollectionratesarelikelymissingoutonalotmorethattheycouldbeearning.

Since2016,firmsofallsizeshaveachievedsimilarcollectionrates,withlargerfirmsenjoyingaslightleadagainstsoloandsmallfirms.Overall,collectionrateshaveimprovedforfirmsofallsizes.In2020,bothsoloandsmallfirmsmatchedthecollectionratesoflarger

firmsandfellbehindin2022despiteincreasingtheiryearoveryearcollectionratesby1%.

Since2016,soloandsmallfirmshaveonlyincreasedtheircollectionratesby4%.Largerfirmshavenotfaredmuchbetter—theyhave

onlyincreasedtheircollectionratesby5%.So,whilefirmsofallsizesareimprovingtheircollectionpractices,itappearsthattheymaynotbefullyrealizingopportunitiestomoreefficientlycollectpaymentfromclients.

Whilefirmsofallsizesareimprovingtheircollectionpractices,largerfirmsappeartobefindingmoreefficientwaystocollectpaymentfromclients.

21|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

collectionratesolofirmssmallfirmsLargerfirmsAllfirms

95%

85%

80%

20162017201820192020202120222023

POORBILLINGANDCOLLECTIONPRACTICESAREHURTINGSOLOANDSMALLFIRMS’CASHFLOW

Ifsoloandsmallfirmsarecollectingmorethanever,whyshouldtheycareabouttheirutilizationandrealizationrates?Ultimately,theamounttheycollectshouldbeconsideredagainstthefullscopeofbillableworktheytakeonandbilltoclients.Namely,iffirmsaren’tmaximizingtheirrealizationrates,thosefirmsarenotfullycapitalizingonthework

performedbytheirstaff.

Take,forexample,theutilizationratesamonglargerfirmsandsoloandsmallfirms.

Assuminganaveragehourlyrateof$300,whenwecomparetheutilizationratesamonglawyersinlargerfirms(42%),smallfirms(32%),andsolo

firms(27%),alawyerinalargerfirmwillperform$1,008inbillablework,whileasmallfirmlawyerwillperform$768andasololawyerwillperform$648onagivenday.

22|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

Iffirmsaren’tmaximizingtheirrealizationrates,thosefirmsarenotfullycapitalizingontheworkperformedbytheirstaff.

However,whenwefactorintherealizationandcollectionratesamongthesefirms,weseethatalawyerinasmallfirmwillonlybillfor$660

oftheworkperformedandasololawyerwillonlybillfor$557ona

givenday.And,whenitcomestotheamountthatlawyersinthesefirmsactuallycollectonagivenday,asmallfirmlawyerwillcollect$594andasololawyerwillonlycollect$501.

Overall,theaveragelawyerinasmallfirmislosingoutonover$174andtheaveragesololawyerislosingouton$147inrevenueeachday,basedonpoorbillingandcollectionpracticesalone.

Theselossesaddup.Forexample,assumingthateachlawyerworks262daysperyear,eachlawyerinasmallfirmislosingupto$45,588inrevenueperyear.Forasmallfirmthathasfourfull-timelawyers,thismeansthefirmcouldbelosing$182,352inrevenueperyear.

Forsolos—whorelyonlyonthemselves—theycouldbemissingoutonupto$38,514inrevenueperyear.

23|LegalTrendsforSoloandSmallLawFirms

Part1:Thestateoflegalpracticeforsoloandsmallfirms

Howpoorbillingandcollectionpracticesaffectcashflow

Revenueearningsbasedonaveragekplsforeachsegment

$1,008

$768

$648

$557

$867

$798

$594

TimecapturedAmountbilledAmountcollected

Theseexamplesunderscoretheneedforsoloandsmallfirmsto

takecontroloftheirbillingandcollectionpractices.Totrulyreapthebenefitsofimprovedutilizationrates,soloandsmallfirms

needtolookathowwelltheyarebilling,andcollectingonbilledamounts.Inparticular,theselawyersshouldbepayingattentiontohowquicklyandconsistentlytheyaregettingpaid.Inthenextsection,weintroducethe“lockup”KPItohelpsoloandsmallfirmsassesstheircashflow.

24|LegalTrendsforSoloandSmallLawFirms

Part2

Lockup

25|LegalTrendsforSoloandSmallLawFirms

Part2:Lockup

Inthe

2023LegalTrendsReport

,weintroducedtheconceptof“lockup.”Thisaccountingtermhelps

lawfirmsassesscashflowintheirbusinessesby

showinghowmuchrevenue—measuredindaysofwork—isunbilledanduncollectedatanygiventime.

Knowinghowmanydays’worthofworkareheldinlockupgivesus

anunderstandingofwhatcashflowlookslikeinalawfirm.Firmswithahighamountofrevenuestuckinlockup—relativetoexpectedannualearnings—haveslowercashflow.Ontheotherhand,firmsthatcanbilloutandcollectontheirworkmoreefficientlywillhavelessoftheir

revenueinlockup,whichwillseethemachievegreatercashflow.

Knowinghowmanydays’worthofworkareheldinlockupgivesusanunderstandingofwhat

cashflowlookslikeinalawfirm.

26|LegalTrendsforSoloandSmallLawFirms

Part2:Lockup

•Realizationlockupistheamountofrevenuethatisunbilledatanygiventime(alsoknownas“work-in-progresslockup”).

•Collectionlockupistheamountofrevenuethatisuncollectedatanygiventime(alsoknownas“debtorlockup”).

•Totallockupisacombinationofrevenueheldinbothrealizationandcollectionlockup.

Lockupconsistsofthree

measureswithinthe

billingprocess

W