09 Jun Are your firm’s financial reports only telling you what happened?

Is your firm using financial reports that only measure what happened in your firm last month or last year? That’s like driving your car looking in your rearview mirror – it’s dangerous.

It’s easy to measure what has happened. They are events that took place. Just add up how many hours you billed your clients, how much you spent on payroll and payroll taxes, how much you sent on advanced client costs even how much you paid in rent. All of these are very straightforward to measure, and it’s the Information used to generate a profit & loss statement. It’s also the foundation of the most widely used small to mid-sized law firm’s financial reports. Measurements that reflect what happened are called lagging indicators.

They are after the fact, and by nature, the top three financial reports, a balance sheet, a profit & loss ( or income statement), and a statement of cash flow are all telling you what happened in the past.

What happens when you want to increase revenue or reduce expenses? The statements seem straightforward, but they are not. Neither of those statements is actionable. You have first to determine what specific actions or tasks you have to change to meet the goal of increasing revenue.

Influencing what happened numbers, is far more complicated.

Leading indicators are the processes, firm policies, and the people that influence the outcomes that are measured and included in your financial reports.

So I ask you, what actions are you doing today, right now, to influence or affect the easily measured numbers. These daily actions have a far greater ability to influence the numbers on your profit & loss statement. However, they are far more challenging to measure.