Law Firms
Fractional CFO and controller services for law firms: lockup, WIP and AR, realization, matter profitability, partner compensation reporting and contingency case costs.
Law Firms
Lockup Is the Number of Days Between Doing the Work and Banking the Money.
Time gets recorded in March, billed in May, and collected in July. Lockup measures that whole span — WIP days plus AR days — and it is the single number that explains why a firm can post a strong year and still borrow to fund partner draws.
2025 industry benchmarks put median realization lockup at 43 days and collection lockup at 32, for roughly 75 days end to end. Firms that pull five or ten days out of that fund a hire without adding a client. Most firms we meet have never seen the number calculated.
We work with litigation and transactional firms where the practice runs well and the finance function has not kept pace — where the managing partner is making compensation, hiring and pricing decisions off a cash-basis P&L that shows none of the things that drive them.
How can we help?
What’s going on in your business and where would you like help?
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The Blind Spot
A Cash-Basis P&L Cannot Show WIP or AR. Those Are the Two Halves of Lockup.
Most firms keep their books on the cash method, and they are right to. Law is an enumerated field under the qualified personal service corporation rules, so the cash method stays available under Section 448(b)(2) regardless of size, and the Section 448(c) gross receipts test sits at $32 million for 2026 for everyone else.
Cash basis is the correct answer for tax. It is close to useless for management. Revenue appears when the money lands, which means unbilled WIP does not exist on the statement and neither does accounts receivable. The two components of lockup — the entire distance between doing the work and getting paid for it — are structurally absent from the report the managing partner reads every month.
That is why the number goes unmeasured. Not because nobody cares about cash, but because the statements were never built to show it. The fix is not converting the firm to accrual. It is a management-basis view running alongside the tax books: WIP by matter and by attorney, AR aging, lockup calculated monthly, and matter profitability that survives contact with the compensation committee.
Production
Utilization, Realization, Collection and Lockup Each Measure a Different Leak.
Utilization and the Hours That Never Get Recorded
Utilization measures billable hours against capacity, and it is the one number most firms already track. What it hides is contemporaneous entry. Time captured a week late is time reconstructed, and reconstructed time is systematically under-recorded. Before pushing anyone toward a higher hours target, we look at the lag between work performed and time entered, because that lag is usually worth more than the target increase.
Two Different Realization Rates
Billing realization is what you invoiced against what you recorded — the pre-bill write-down. Collection realization is what you banked against what you invoiced — the post-bill write-off. Industry averages run near 88% realization and 93% collection. Firms routinely report one number and call it realization, which conceals whether the leak is happening at the billing partner's desk or in the collections process. Those are different problems with different fixes, and the mechanics are worked through in realization rate, effective bill rate and utilization.
WIP Aging Nobody Looks At
Best-in-class firms hold roughly 75% of WIP under 30 days, 20% at 31 to 60, and 5% beyond. The industry average is closer to 50/30/20. Unbilled time ages quietly because nothing forces the conversation — no client complains about not being invoiced. We install the WIP aging review and the billing cadence that keeps the oldest tranche from becoming a write-off by default.
Matter-Level Profitability
Effective rate is recorded value divided by hours; standard rate is what the rate card says. The spread between them, matter by matter and client by client, is where firms discover that the largest client is the least profitable one. We build reporting at the matter level so alternative fee arrangements and flat fees get priced against what they actually cost to deliver rather than against last year's rate card.
Partner Economics
Origination Credit Drives Compensation Long After the Originating Partner Left the Matter.
Originating credit, working attorney credit, and billing attorney credit are three different claims on the same dollar, and most compensation formulas weight all three without anyone reconciling them to the ledger.
Revenue per lawyer and profit per equity partner are the headline figures, but leverage — the associate-to-partner ratio and the work genuinely pushed down to it — is what moves them. A firm that cannot see which partners are running leveraged matters and which are doing associate work at partner rates is compensating on reputation rather than contribution.
We build the structure that reconciles the compensation model to the general ledger, so origination credit, guaranteed payments, draws and year-end distributions tell one story instead of three. The same structure is what a buyer or a merger partner diligences later — see preparing a firm for sale.
Contingency and Case Costs
Advanced Case Costs Are Loans, Not Expenses, and the IRS Has Said So Since 1975.
Under Revenue Ruling 75-120, hard costs a firm advances on a contingency matter — filing fees, expert witnesses, deposition transcripts, medical records — are treated as loans to the client. They belong on the balance sheet as a receivable, not on the P&L as a deduction.
Soft costs, the general overhead of running the office, remain deductible in the year incurred. The distinction is routinely collapsed, and a firm expensing hard advances is overstating deductions on every open matter it carries. When a case resolves, the recovery offsets the capitalized balance. When it does not, a bad-debt deduction becomes available in the year the advance is deemed uncollectable — which requires someone to be tracking case cost inventory closely enough to make that determination.
For firms carrying meaningful contingency inventory, this sits alongside a second problem: the case inventory itself is an unvalued asset. We build the case cost tracking and inventory reporting that makes both the tax position and the borrowing base defensible.
Systems
Your Practice Management System Was Built to Bill, Not to Report.
Clio Manage, Centerbase, Actionstep, PCLaw and Tabs3 handle time capture and billing well at the smaller end. Aderant, Elite 3E, ProLaw and Orion carry larger firms. Litigation practices often add Filevine or Litify for case management on top. All of them will produce an invoice. Few will tell you whether the matter made money — the same gap we work in across professional and technical services firms generally.
The ledger underneath is usually QuickBooks Online, occasionally Sage Intacct or NetSuite where the firm has multiple entities or offices. The reporting layer that connects matter-level data to the financial statements is the part that generally does not exist, and building it rarely requires replacing anything.
Firms with institutional clients carry an additional layer — eBilling through platforms such as eBillingHub or Legal-X, with client-mandated billing guidelines and task codes that drive rejections and delayed payment when they are not enforced at entry.
Common Questions
Cash Stopped Matching Billings. These Are the Questions That Follow.
We had a record year on paper. Why did we have to borrow to fund draws?
Almost always lockup. The work was performed and the fees were earned, but cash arrives only after billing and collection, and if WIP days and AR days both stretched during a growth year the firm financed that growth itself. The fix is not a line of credit; it is shortening the interval. We calculate lockup, break it into its WIP and AR components, and work the component that is moving.
Our realization looks fine. Should I be worried about anything else?
Ask which realization. Billing realization and collection realization measure different failures — write-downs before the invoice goes out versus write-offs after it does. A firm reporting a single blended number cannot tell whether partners are discounting at the pre-bill stage or clients are not paying in full. We separate the two and report them by practice group and by billing attorney.
We handle contingency work. Are we accounting for case costs correctly?
The common error is deducting hard advanced costs in the year they are paid. Revenue Ruling 75-120 treats them as loans to the client, capitalized as a receivable until the matter resolves. Soft costs stay deductible. Firms that have been expensing hard advances usually need both a correction and a tracking system that can support the bad-debt determination when a case is lost.
Our compensation formula causes an argument every year. Is that a finance problem?
Partly. Most compensation disputes are really reporting disputes — origination credit, working attorney credit and billing credit are not reconciled to the ledger, so every partner arrives with a different set of numbers. We do not write the compensation model. We build the reporting underneath it so the conversation starts from one set of figures.
How does an engagement work for a firm our size?
We start with the Financial Discovery Assessment to establish where the finance function stands. From there we deploy the right combination — typically a fractional CFO for strategy and oversight, supported by Controller and accounting resources as the work requires. The engagement scales to the firm rather than to a package.
How we engage.
When It's Broken
Put out the fire.
Interim CFO & Controller. At the loss of a key employee. When things crash or break. We deploy interim professionals — repairing what's broken and keeping the system running while you decide what's next.
When You're Building & Exiting
Advise and serve.
CFO, Controller & Accounting Team. Right-sized financial leadership — and the team to execute. Embedded for the long run. The CFO Power Team: right roles, right cost.
When You Don't Know What You Don't Know
Assessment services.
Financial Discovery Assessment. A structured deep-dive that reveals where your finance function stands today — and what it needs to support where you're going.
Transaction Readiness Assessment. Will the books and reporting tell the right story to a buyer or investor — and do the systems and processes support merger or acquisition activities?
Our Proprietary Diagnostic
The Financial Discovery Assessment shows you what’s working, what’s missing, and the plan to get where the business needs to go.
Every Assessment applies the same structured examination — accounting systems and technology, processes and procedures, team members and team structure, and team-member will-skill — refined across hundreds of engagements in businesses that look like yours.
The output is the Financial Heat Map System: dollarized findings, hidden inefficiencies, and a sequenced plan. It’s presented at the Executive Action Meeting, where your stakeholders review findings and recommendations in non-clinical, non-technical language they can act on.
We’ve walked into hundreds of businesses at the stage yours is in now. We know where to look. We know how to fix what we find.
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