Glossary
The Law Firm Business Glossary
Running a law firm is a business, and the business has its own vocabulary. These are plain-language definitions of the operational and financial terms that decide whether a firm is profitable, stable, and able to run without the owner in every chair. No jargon for its own sake, just the words that matter when you look at your own numbers.
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Fractional COO
A Chief Operating Officer engaged part-time on a monthly retainer rather than hired full-time. For a law firm, a fractional COO owns the operational side of the business: systems, staffing, intake, workflow, and the day-to-day machinery that lets the firm run without the owner doing everything. Firms use one when they need senior operational leadership but are not large enough, or not ready, to justify a full-time executive salary.
Fractional CFO
A Chief Financial Officer engaged part-time on a retainer. A fractional CFO is forward-looking: cash flow forecasting, pricing, profitability, owner compensation, and the financial decisions that determine whether a firm grows or stalls. This is distinct from a bookkeeper, who records the past, and an accountant, who handles taxes and compliance. A small firm can get CFO-level financial strategy without a full-time hire.
Realization Rate
The percentage of the work a firm performs that it actually bills and collects. If an attorney works ten hours but only bills eight and collects on seven, realization is leaking at two points. Low realization is one of the most common and least visible drains on law firm profitability, because the work was done but the revenue never arrived.
Collection Rate
The percentage of billed dollars a firm actually collects. A firm can be busy, bill aggressively, and still struggle if invoices go unpaid or get written down. Collection rate measures the gap between what was invoiced and what reached the bank.
Utilization Rate
The share of an attorney's available working time spent on billable work. Low utilization can signal too much administrative load, weak delegation, or an intake problem. It is a core productivity measure for a firm that bills by the hour.
Work in Progress (WIP)
Work that has been performed but not yet billed to the client. WIP that sits too long is unbilled revenue aging on the shelf, and the longer it waits, the harder it is to collect. Tracking and promptly billing WIP is a basic lever of law firm cash flow.
Accounts Receivable (AR) and Aging
AR is money clients owe the firm for invoices already sent. Aging is how long those invoices have been outstanding, usually grouped as 0-30, 31-60, 61-90, and 90-plus days. The older a receivable gets, the less likely it is to ever be paid. A healthy firm keeps its aging tight.
Lockup
The total time and money tied up between doing the work and getting paid for it, combining unbilled WIP and unpaid AR. High lockup means a firm can be profitable on paper and still short of cash, because the money is locked inside the billing cycle instead of in the bank.
Owner's Compensation vs. Profit
In a healthy firm these are separated. Owner's compensation is what the owner is paid for the work they do as an operator, a market salary for the role. Profit is what the business earns above that, the return for owning it. When an owner just takes whatever is left, they cannot tell whether the firm is actually profitable or simply funding their paycheck.
Trust (IOLTA) Account vs. Operating Account
A trust account holds client funds the firm has not yet earned, and it is governed by strict ethical and compliance rules. An operating account holds the firm's own money. Keeping the two rigorously separate, and never spending unearned client funds, is fundamental to running a compliant firm. This is a compliance matter, not legal advice; consult your jurisdiction's bar rules.
Three-Way Reconciliation
A monthly check that the trust bank balance, the trust ledger total, and the sum of the individual client ledgers all match. It is the standard control that catches trust accounting errors before they become compliance problems.
Evergreen Retainer
A retainer arrangement where the client keeps a minimum balance on deposit and replenishes it as the firm bills against it. It smooths cash flow and reduces the awkwardness of chasing payment, because the funds are already in place before the work is done.
Intake Conversion Rate
The percentage of qualified inquiries that turn into signed clients. It exposes whether a firm's new-client problem is a lead-volume problem or a leak in how inquiries are handled. A firm with plenty of calls and a low conversion rate has an intake problem, not a marketing problem.
Cost Per Acquired Client
The total marketing and intake spend divided by the number of clients actually signed. It tells an owner what a new client truly costs to win, which is the only honest way to judge whether a marketing channel is profitable.
Billable Hour vs. Flat Fee
Two pricing models. The billable hour charges for time spent; a flat fee charges a set price for a defined matter. Flat fees can improve cash flow and client trust and reward efficiency, while hourly billing ties revenue directly to time. Many firms use a mix depending on practice area.
Standard Operating Procedure (SOP)
A written, repeatable instruction for how a specific task is done in the firm. SOPs move knowledge out of one person's head and onto the page, so the work happens the same way every time regardless of who is doing it. They are the building blocks of a firm that runs without the owner.
Practice Management System
The software platform a firm uses to run matters, calendars, documents, time tracking, billing, and often trust accounting, for example Clio, MyCase, or PracticePanther. It is the operational backbone, but a tool only delivers value when someone configures it well and the team actually uses it.
KPI (Key Performance Indicator)
A small set of numbers an owner watches to know whether the firm is healthy: new inquiries, intake conversion, realization, collection rate, and lockup, among others. The point of KPIs is to replace gut feel with a dashboard, so problems show up early instead of at tax time.
From Lawyer to Law Firm
Know the words. Now fix the numbers.
If realization, lockup, or owner compensation just described a problem you recognize, that is exactly the work I do. One on one. When you call, you get me.