Eight calculators built for law firms.

Why the rate you charge is usually not the rate you earn

There is a number attorneys quote when asked what they charge, and there is a different, considerably smaller number they actually collect per hour of work. The gap between them is where firms quietly lose their margin.

Three things separate the two. You cannot bill every hour you work — administration, business development and the matter that turned out to be smaller than expected all eat capacity. Some recorded hours get written down at prebill. And some invoiced amounts never get collected.

Run a $400 rate through 90% realization and 92% collection and you are earning about $331 per recorded hour. Take that across 22 actual billable hours a week rather than the 30 you assumed, and the annual number moves by a lot.

What this tells you, and what it does not

It gives you a floor — the rate below which your target income is arithmetically unreachable at your current capacity and leakage. That is a genuinely useful number, and most attorneys have never calculated it.

It does not tell you what your market will bear. That is a judgment about your jurisdiction, your specialty and your reputation, and you are far better placed to make it than any calculator. If the floor comes out above what your market pays, the answer is not necessarily a rate rise — it might be lower overhead, better realization, or a different mix of work.

If the number surprises you

It usually does, and there are only four levers. Raise the rate, if the market supports it. Bill more hours, which has an obvious ceiling and a real personal cost. Cut overhead, which is finite. Or fix the leakage — which is the one most firms have not tried, and often the largest single opportunity in the list.

Three stages, three different problems

“Our realization is low” is not a diagnosis. It is a symptom with at least three unrelated causes, and treating the wrong one wastes a year.

Low utilization means too little of your working day reaches a matter. The cause is usually either time capture — hours reconstructed on Friday are always fewer than hours recorded as they happen — or genuine non-billable load that has quietly grown. The fix is operational: better capture habits, or delegating the admin.

Low billing realization means you record the time and then write it down at prebill. That is a scoping and fee-agreement problem, not a productivity one. It typically means the matter ran wider than the engagement letter described, or you are absorbing work you never agreed to do. Raising your rate does nothing here — you would simply write down a bigger number.

Low collection realization means you invoiced properly and did not get paid. That is a billing-cadence and follow-up problem. It responds well to boring interventions: bills going out on the same date every month, an aging report someone actually reads, and a follow-up sequence that starts at 30 days rather than 90.

Your effective rate is the honest number

The most useful output here is the effective rate — total collections divided by every hour you worked, billable or not. It is what your time is genuinely worth once every leak is accounted for.

It is frequently around half the rate on the engagement letter. That is not a sign something is broken; some gap is structural in any practice. But knowing the real figure changes how you think about taking on a marginal matter, hiring, or whether that administrative task is worth doing yourself.

What the three legs are

A trust reconciliation is not a bank reconciliation with a different account. It compares three figures, and all three have to agree.

The adjusted bank balance. What the bank says you hold, corrected for timing — add deposits that have not cleared, subtract cheques that have not been presented.

The book balance. What your accounting system says the trust account holds. This should match the bank once timing is accounted for; if it does not, something happened in the bank that your books do not know about, or vice versa.

The sum of individual client ledgers. This is the leg firms cannot produce. Every client with money in trust has a running balance — deposits in, disbursements out, earned fees transferred. Add them all up and the total must equal the other two.

Two-way reconciliation — bank against book — will tell you your books are current. It will not tell you whether the money is allocated correctly among your clients. Only the third leg does that, and it is the one that matters most.

What a variance usually means

Bank does not match books. Normally a bank fee taken directly from the trust account, an uncleared item, or a transaction entered in one place and not the other. Bank fees deducted from trust are worth checking carefully — in most jurisdictions the firm, not the clients, must bear them.

Books do not match client ledgers. A deposit or disbursement recorded at the account level but never posted to a specific client. Common, and it means the money is in the account but unattributed.

A negative client ledger. The most serious result this tool can show you. It means more has been disbursed for that client than was ever held for them — which arithmetically means another client’s funds covered the difference. The account total can still reconcile perfectly while this is true, which is exactly why the third leg exists.

This is a maths check, not a compliance review

A zero variance here tells you the numbers agree today. It does not tell you your trust practices satisfy your jurisdiction’s rules, and it is not legal or ethics advice.

What to do about a variance — including whether it triggers a reporting obligation — is a question for you and your ethics counsel. What we can help with is the accounting underneath: finding where it went wrong, documenting it properly, and making sure the reconciliation happens every month so the next one is a five-minute confirmation rather than an investigation.

What this is for

Two questions, mostly.

“Can we afford to hire?” Add the prospective associate as a timekeeper, add their fully loaded cost to overhead, and see what happens to owner compensation. The honest version of this exercise usually includes a ramp period — most new hires take six to twelve months to reach target hours, and this model does not assume that for you.

“What has to be true for this year to work?” Set the collections target you need and work backwards. The break-even hours figure tells you the floor: below that many billable hours per timekeeper per week, the firm loses money regardless of how good the rate is.

The number people get wrong

Working weeks. Almost everyone enters 50, or 52. Then they take two weeks of vacation, lose a week across public holidays, and lose another to illness, a conference and a family thing. Forty-six is a realistic figure for most solo and small-firm attorneys, and moving from 50 to 46 changes projected collections by roughly eight percent.

The second most common error is treating every timekeeper as identical. A partner billing 30 hours a week and a first-year associate billing 18 average out to a number that describes neither. If the spread across your team is wide, run this once per band and add the results.

Trust money is not your money

It should not need saying, and yet the single most dangerous cash flow mistake a firm can make is looking at a bank balance that includes client funds and feeling comfortable.

Trust balances are a liability. That money belongs to your clients until you have earned it, and using it for firm operating expenses — even briefly, even accidentally, even with every intention of putting it back — is among the most serious things an attorney can do wrong with money.

This calculator asks for operating cash specifically for that reason. If you had to think about which number to enter, that is worth noticing.

Why lawyers need more runway than most businesses

Law firm cash flow is unusually lumpy, and the lumps do not line up.

Payroll is fixed and non-negotiable. Rent is fixed. Malpractice insurance frequently arrives annually as one large payment. Expert witness invoices land unpredictably and can be substantial.

Meanwhile collections are anything but even. Corporate clients pay on 60 or 90-day cycles as a matter of policy. Contingency work produces nothing for months and then everything at once. A single large matter settling — or not settling — moves a quarter.

Three months of operating expenses is a common floor. Firms with significant contingency exposure or heavy advanced case costs generally need considerably more, because their revenue timing is genuinely outside their control.

What to do with a short runway

The instinct is to chase revenue, and that is usually the slowest lever. Faster ones exist.

Work the aging report. For most firms with a cash problem, the money already exists — it is sitting in receivables past 90 days that nobody has followed up. That is collectible cash requiring no new work.

Fix the billing cadence. Bills that go out on the 5th of every month get paid faster than bills that go out whenever someone remembers. This is unglamorous and it works.

Look at the timing, not just the total. Knowing that a large insurance premium and payroll land in the same week is the difference between a scheduling decision and a crisis.

Why the buckets matter more than the total

Two firms both show $180,000 in receivables.

The first has $150,000 of it current, $20,000 at 31–60 days and $10,000 at 61–90. Nothing older. That firm is going to collect nearly all of it.

The second has $40,000 current and $85,000 past 120 days. Same headline number, materially different reality — and a meaningful share of that older balance is unlikely to arrive at all.

The pattern behind this is well established across commercial collections: recovery drops as receivables age, and it drops fastest after 90 days. The exact percentages vary enormously by practice area and client base, which is why the defaults here are labelled as planning assumptions rather than facts about your firm.

Replace our assumptions with yours

The single most valuable thing you can do with this calculator is stop using its defaults.

Once you have twelve months of history, you can measure your own recovery rate per bucket directly: of everything that sat in the 61–90 bucket last year, what share was eventually collected? That number is worth more than any industry average, because it reflects your clients, your practice area and your follow-up process.

Until you have it, the defaults will do — the shape is right even if the precise figures are not.

The 90-day line

If more than about 15% of your receivables sit past 90 days, the problem is almost never that your clients are unusually difficult. It is that bills are going out irregularly and nobody is following up on a schedule.

Both are fixable, and neither requires an awkward conversation. Consistent billing dates and a reminder sequence that starts at 30 days will move the aging profile of most firms within a quarter — which is money you have already earned, arriving sooner.

The cost that does not appear anywhere

There is no line in your P&L for the eleven hours a month you spend on bookkeeping. It does not show up as an expense, which is exactly why it feels free.

At 12 hours a month, an attorney billing $325 an hour who would convert about 60% of that time to billable work is giving up roughly $28,000 a year. That is the visible part.

The less visible part is what unreliable books cost in decisions. A case cost advanced and never billed back. A rate that has not moved in four years because nobody could tell whether it needed to. A hire postponed because the numbers were too murky to justify it. Those are usually larger than the hours, and no calculator can size them for you.

Where this calculator is deliberately conservative

It does not count the value of your evenings, and it should. Several of the attorneys we work with would tell you that was the actual reason they made the change, and no spreadsheet captures it.

It does not price errors. A trust variance found in month eleven instead of month one, a filing extension, a CPA reconstructing your year in March — these are real costs with real numbers attached, and they are entirely firm-specific.

It also does not assume you stop being involved. Budget an hour or two a month for approving payments, answering questions and reading your statements. That does not go away, and it should not.

When the answer is “keep doing it yourself”

Sometimes it is. A brand-new solo practice with thirty transactions a month, no trust account and no staff genuinely may not need outsourced bookkeeping yet. If that is what this calculator tells you, believe it.

The threshold is usually a trust account. The moment client funds are involved, the cost of getting it wrong stops being measured in hours.

Read the disclaimer

Genuinely. This calculator models self-employment and payroll tax only. It ignores federal and state income tax, the qualified business income deduction, the additional Medicare surtax on higher earners, state entity-level taxes and franchise fees, health insurance treatment, retirement plan contributions, and every fact specific to your situation.

Entity election is one of the few financial decisions where a wrong answer is expensive and slow to reverse. Nobody should make it from a web page — including this one.

What the election actually does

As a sole proprietor, your entire net profit is subject to self-employment tax, calculated on 92.35% of it: 12.4% for Social Security up to the annual wage base, plus 2.9% for Medicare with no cap at all.

As an S-corp, you pay yourself a salary. That salary carries the same payroll taxes. Whatever profit remains can be distributed to you without payroll tax.

The saving comes from the distribution. That is the whole mechanism.

The trap in that sentence

If the saving comes from the distribution, the obvious move is to make the salary small and the distribution large. This is precisely what the IRS looks for, and “reasonable compensation” is where the election most often goes wrong.

A salary must reflect what you would pay someone else to do your job — your role, your market, your hours. An attorney generating $300,000 in profit while paying themselves $40,000 is making a claim that is difficult to defend, and reclassification brings back taxes, interest and penalties.

The calculator flags a salary below 35% of profit for exactly this reason. That threshold is a rough heuristic, not a safe harbour — there is no safe harbour. Your CPA sets this number based on your actual facts.

The costs on the other side

An S-corp is not free to run. You need payroll — a real payroll service, real filings, real deadlines. You file a separate 1120-S return. Several states charge franchise taxes or minimum fees on S-corps, some large enough to erase the federal saving entirely. Your bookkeeping gets slightly more involved.

For a practice with modest profit, those costs frequently exceed the saving. The election starts making sense at higher profit levels, and where that crossover sits depends on your state, your CPA’s fees and your specific numbers.