Michael’s 18-attorney litigation boutique generated $6.8M in annual revenue—yet partners couldn’t agree whether the firm was actually profitable. Partner draws varied without a formula. Two associates spent most of their time on matters billed at $180/hour that actually cost $220/hour fully loaded. The bookkeeper “kept the trust account” but didn’t run three-way reconciliations—a state bar audit waiting to happen. Michael needed financial leadership built for legal economics, not generic accounting. He needed a CFO for law firms.
Why this matters
According to the Clio Legal Trends Report, the average firm collects only 86% of billable time—leaking the remaining 14% to write-downs, write-offs, and uncollected fees. Many firms perform even lower without visibility into which attorneys, matters, or clients drive the leakage. Specialized CFO services shift firms from reactive, compliance-only operations to strategic, profitable businesses.
What Is a CFO for Law Firms?
A law-firm CFO provides strategic finance tailored to legal realities: IOLTA compliance, matter-level profitability, realization optimization, partner compensation, and the integrations that tie Clio/MyCase to accounting for real-time visibility.
They work at the intersection of compliance and strategy—keeping trust accounts audit-proof while revealing which practice areas and clients generate profit (or drain it) and aligning partner pay with firm goals.
Core Financial Responsibilities (Legal-Specific)
Trust accounting oversight
- IOLTA compliance and controls (no commingling)
- Monthly three-way reconciliation (bank balance ⇄ client trust ledger total ⇄ GL)
- Matter-level trust ledgers and documentation that survives bar audits
Matter-based financial tracking
- True matter profitability (attorney cost rates, paralegal/staff time, hard costs, overhead allocation)
- Early detection of unprofitable work before it consumes resources
Realization rate analysis
- Measure worked → billed → collected gaps by attorney, client, and practice area
- Fix leakage with better billing narratives, cadence, pricing, and collections
Partner compensation design
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Draws vs. distributions; capital accounting; balanced formulas (origination, hours, realization) with discretionary leadership factors
Cash flow & FP&A
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Forecast working capital given long collection cycles, plan partner tax distributions, and manage seasonal swings
Strategic KPIs & dashboards
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Revenue per lawyer, leverage ratios, practice/matter margins, client concentration risk, aged AR/DSO
Technology integration
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Connect practice management (Clio, MyCase) + time/billing + accounting (QuickBooks, Tabs3, CosmoLex, etc.) for one source of truth
How Law-Firm CFOs Differ from Corporate CFOs
- Regulatory depth: IOLTA, state bar rules, malpractice implications
- Matter economics: Time applied to unique matters—not products/subscriptions
- Realization expertise: Law-specific leakage between hours worked, billed, and collected
- Partnership dynamics: Draws, distributions, capital, and governance
- Contingency portfolios: Lumpy receipts, case-cost financing, portfolio modelingTrust Accounting & IOLTA: Non-Negotiables
Common failures (and bar triggers):
- Commingling client/firm funds—even “just to smooth cash flow”
- Insufficient balances vs. client ledgers
- Disbursements before funds clear or without authorization
- Missing records (many jurisdictions require 5–7 years)
Three-way reconciliation proves:
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Bank balance, 2) Sum of client trust ledgers, 3) GL trust balance — all match exactly.
Most firms do 2-way only and miss the client-ledger check—where errors hide.
Matter-Level Profitability: From Intuition to Data
Track, compare, and act on:
- Direct attorney cost rates vs. realized billing
- Staff/paralegal time and recoveries
- Pass-through expenses vs. absorbed costs
- Overhead allocation by effort or revenue
Example: An insurance-defense book (25% of revenue) returned only 8% of profit due to low panel rates and write-offs. Shifting focus to higher-margin commercial litigation raised firm margins materially.
Partner Compensation: Align Pay with Strategy
- Balance objective metrics (originations, hours, realization) with discretionary firm-building factors
- Separate steady draws from performance-based distributions
- Account for capital contributions in returns/interest
- Make criteria transparent to reduce disputes and preserve culture
Key Services You Can Expect
Trust Accounting Management & Compliance
- System design, approvals, segregation of duties
- Monthly three-way reconciliations with documented variance resolution
- Bar-audit readiness (reports, trails, SOPs) + staff training
Realization Optimization
- Rate/discount diagnostics by attorney, client, and matter
- Better billing narratives and invoicing cadence
- Collections workflow (reminders at 30/45/60, call ownership, escalation)
- Pricing strategy (AFAs/flat/contingency/value-based) and targeted rate moves
Partner Compensation Modeling
- Formula design and sensitivity testing
- Draw/distribution cash-flow forecasting
- Tax distribution planning (K-1 projections)
- New-partner buy-ins and economic impact analysis
Practice/Matter Analytics
- Practice-area P&Ls (revenue, margin, realization, utilization)
- Client-level profitability across portfolios
- Attorney productivity insights to inform hiring and coaching
Strategic Planning & Cash Flow
- Budgets, rolling forecasts, and working-capital planning
- Growth financing (LOCs, term loans, capital calls)
- M&A diligence, valuation, and deal structuring
Metrics Every Managing Partner Should Track
Realization & collection
- Realization: Billed / Standard billable value (target 90%+)
- Collection: Collected / Billed (watch trends)
- Overall realization: Collected / Standard value (combined signal)
Revenue per lawyer & leverage
- RPL benchmarks vary by practice; many solid firms land $400k–$600k per attorney
- Staff leverage: typically 0.75:1 to 1.5:1 (practice dependent)
Working capital & DSO
- DSO = (AR / Revenue) × 365 — keep <60 days; >90 signals trouble
- Aged AR % >90 days is a red flag
Fractional vs. Full-Time CFO
Fractional (great fit for):
- 5–50 attorneys; 15–20 hrs/week need
- Straightforward economics; budget of $60k–$150k/year
Full-Time (when to graduate):
- 50+ attorneys, multi-office complexity
- Daily executive involvement; manages controllers, billing, AR teams
- Complex contingency portfolios or sophisticated corporate practices
Common path: fractional at 10–40 attorneys → full-time at ~40–50+ as complexity scales.
How CFOs Move the Needle (Real Outcomes)
Identify unprofitable work
- Exit low-margin panels; invest in higher-margin practices
- Result in one firm: margin ↑ from 24% → 37% with revenue growth
Fix billing & collections
- Biweekly billing, better narratives, owned follow-ups
- Result: DSO 89 → 54 days, +$240k working-capital unlock, $43k fewer bad-debt write-offs
Invest where profits really are
- Reweight budget, hires, and tooling toward high-realization practices
- Multi-year lift in profit share and retention
Connect Your Systems (So Data Actually Flows)
- Practice management (Clio, MyCase, PracticePanther): time, matters, docs
- Billing & accounting (QuickBooks, Tabs3, CosmoLex, PCLaw): AR/AP, trust
- Ideal flow: time → billing → invoices → GL; payments update both operating and trust correctly; matter and client data stay consistent
Choosing the Right Law-Firm CFO
Must-haves
- References from firms like yours
- Hands-on trust accounting/IOLTA expertise (your jurisdiction)
- Matter-level profitability and realization chops
- Clio/MyCase + legal accounting experience
- A track record of margin and cash-flow improvement
Red flags
- “We’ll figure out trust accounting later”
- No law-firm references
- Generic dashboards that ignore realization/collection dynamics
Good questions to ask
- How do you run three-way reconciliations and prove compliance?
- Show an example of matter-level profitability analysis you’ve implemented.
- Which AFAs improved realization in firms like ours—and when do they fail?
Getting Started
CFO services built for law firms deliver what generic finance can’t: audit-proof trust accounting, higher realization, aligned partner compensation, and matter-level insight that drives profitable growth.
Exact Partners supports boutiques to multi-office firms and works seamlessly with Clio, MyCase, QuickBooks, and more.
Schedule a consultation: getexact.com • (716) 249-6434
