This guide is about understanding the ‘gap’ between the capacity in your legal firm, against what it is actual billing. We call this gap the ‘black hole’ in a legal firm.
We then explore some common reasons why there may be a gap and what you can do about it.
Comparing Capacity to your Billings
The first thing to do here is obtain your billings for the last 12months. This figure should then be coupled with WIP that is over and above normal WIP and is recoverable.
Example may be, last financial year billings were $2m and you had additional (recoverable) WIP of $300k to the prior year. I’d say, add this onto the $2m in billings. Total billing figure $2.3m.
This total figure is then compared against your capacity. If there is a gap between billings and capacity, this is what we call ‘the black hole’ in a legal firm.
*Note, this does not include write offs. Write offs are usually part of the reason why there is a gap – we’ll cover this soon.
It is likely there may be a small gap. It can be normal to have a gap, because the firm is growing or you have added in some more staff and they are not yet hitting expected performance.An assessment needs to be made on the size of the gap and at what point you start to go about fixing the problem. I’d say anything over 10% needs attention. But if you are high performing, you may say anything at all.
Mark Rogerson discussing the next steps below: