Lifecycle of the Billable Hour Association of Legal Administrators Russell Chimeno, CPA

Overview Hours (billable, non-billable, utilization) Rates (realization) Work-in-process, Accounts Receivable Discipline (Timekeeping, Billing and Collecting) Alternate Fee Arrangements

Hours 8 hours per day X 5 days per week = 40 hours each week X 52 weeks each year = 2080 hours each year

Hours Billable (Chargeable) Hours Non-Billable Hours Hours related to client engagements Non-Billable Hours Administrative, Business Development, Professional, Personal

Rates Average in Houston Metropolitan Area Solo Practitioner $250 per hour 2080 hours X $250 /hour = $520,000 year

Work-in-process (WIP) Example: You work 20 hours on a matter for a client: 20 X $250 = $5000

Work-in-process (WIP) You order a pre-bill (pro-forma), review and edit entries. You determine that all is correct and you request an invoice: 20 X $250 = $5000

Accounts Receivable The invoice is generated and sent to the client. The client pays the invoice in full: 20 X $250 = $5000

Realization Billing Realization Actual Time: 20 hours Amount Billed: 20 hours 20 ÷ 20 = 100%

Realization Collection Realization Hours Billed: 20 Hours Paid: 20 20 ÷ 20 = 100%

Effective Rate Effective Rate Actual Investment: 20 x $250 = $5000 Amount Collected: $5000 $5000 ÷ 20 = $250

Work-in-process (WIP) Example: You work 10 hours on a matter for a client: 10 X $250 = $2500

Work-in-process (WIP) You order a pre-bill (pro-forma), review and edit entries. You determine that of the three hours you spent researching the matter, you will only charge for one of those hours: Initially 10 X $250 = $2500 Now 8 X $250 = $2,000 (generating a write-down)

Accounts Receivable The invoice is generated and sent to the client. The client short pays the invoice as follows: 6 X $250 = $1500 The client disputes two hours of the charge, you accept the payment in full (generating a write-off)

Realization Billing Realization Actual Time: 10 hours Amount Billed: 8 hours 8 ÷ 10 = 80%

Realization Collection Realization Hours Billed: 8 Hours Paid: 6 6 ÷ 8 = 75%

Effective Rate Effective Rate Actual Investment: 10 x $250 = $2500 Amount Paid: $1500 $1500 ÷ 10 = $150

Totals Example 1 Example 2 Total Recorded 20 hrs 10 hrs =30 x 250 =7500 Billed 20 hrs 8 hrs =28 x 250 =7000 Collected 20 hrs 6 hrs =26 x 250 =6500

Totals Billing Realization: Actual Time 30 Amount Billed 28 28 ÷ 30 = 93% Collection Realization: Amount Collected 26 26 ÷ 28 = 93% Effective Rate Actual Investment 30 Amount Collected $6500 6500 ÷ 30 = $216

Utilization Example 1: Actually billed 35 hours last week Weekly billing requirement = 40 35 ÷ 40 = 87.5%

Utilization Example 2: Actually billed 35 hours last week Actually worked 43 hours last week 35 ÷ 43 = 81%

Discipline

Discipline

Discipline

Discipline

Discipline

Discipline Timekeeping habits Altman Weil Consulting Study 1/10 time lost if you don’t record until end of day 4 hours lost if you don’t record until end of week 15 hours lost if you don’t record until end of month 4 hours each week X 52 weeks = 208 hours per year

Discipline Timekeeping habits Attorney’s Master Class Reconstructing hours end of day loses 5-10% Reconstructing hours end of week loses 15-25% (or 6 to 10 hours each week) 8 Hours each week X 52 weeks = 416 hours year

Discipline Timekeeping habits Altman Weil Consulting Study 208 hours year X $250 per hour = $52,000

Discipline Timekeeping habits Altman Werl Consulting Study $52,000 X 30 years = $1,560,000 career $52,000 X 35 years = $1,820,000 career $52,000 X 40 years = $2,080,000 career

Discipline

Discipline Billing and Collecting Set Aside Specific day(s) each month for billing Bill Monthly while it is still fresh Follow-up promptly – communication is key

Alternative Fee Arrangements Economic relationship with client not based on hours-times-rates

Alternative Fee Arrangements Fixed Fees Value/incentive billing Blended Rates Contingency Fees

Summary Hours (billable, non-billable, utilization) Rates (realization) Work-in-process, Accounts Receivable Discipline (Timekeeping, Billing and Collecting) Alternate Fee Arrangements

Lifecycle of the billable hour