In July, an employment attorney in California told me he was nearing the second payroll of his sixth month since going on his own. He figured he had only three ways to make it work: the line of credit, his savings, or just not paying himself, as he had last month.
He couldn’t understand how he got here. He has a full calendar, and all of his invoicing is done.
The one move
The only number he looked at was revenue. At the old firm he generated $1.2 million a year, and when he left the book came with him.
He didn’t realize the significance of the firm his book was attached to before he left it. You know, the firm that paid him on time whether his clients did or not.
His book had been calculating two things at once. Not just the work itself, it also had a balance sheet that was built to cover any gap between finishing the matter and the client actually paying the invoice. The old firm handled the second one for him. He only saw the one number. The revenue he generated.
If you read my work often, you know what comes next. The number that matters in a solo or small firm is contribution per owner hour. Measured when the cash arrives, after the cost of waiting for it, and minus expenses.
Same book, two balance sheets
His clients are companies billed hourly on net terms, so the gap between finishing the work and receiving the money is built into the book.
Clio’s 2025 benchmarks put the median realization lockup at 43 days, the time between doing the work and billing it, and the median collection lockup at 32 days, the time between billing and payment. The median total lockup is 93 days. Each median comes from its own distribution, so the total is the 93 Clio reports directly. On a $1.2 million book, 93 days of lockup holds about $306,000 of finished work outside the bank at any given time. Each ten days of lockup holds about $33,000.
At the old firm that $306,000 sat on someone else’s balance sheet. The firm’s cash, its credit line, and its draw schedule absorbed the delay, and it stayed out of his view. At his own firm, the same amount starts on day one, and his own balance sheet carries it.
What moves the timing
His payroll runs on a two week cycle and his collections run on each client’s schedule. The two clocks run independently.
A book weighted toward a small number of corporate clients concentrates timing along with revenue. One client’s slow quarter becomes one missed payroll, where a larger book would show a dip in the average.
The interest on the credit line and his own deferred draw are both real costs of holding the gap. Both land in the overhead account. They’re detached from the matters that created the gap, and the clients whose timing caused the delay look clean on paper.
What the reporting leaves out
In the first quarter, contribution per owner hour turns negative once you calculate carrying cost. Even with revenue identical to the old book. The clients are the same. The rates are the same and the hours are the same. The number changes only when the date the cash arrives is part of the calculation.
The P & L and the bank balance both show cash is tight. But neither can tell you which matters cause the delay.
The zone worth watching is cash coverage of fixed costs against lockup. I’m naming the zone and leaving the threshold for a later pass, once more quarters are in.
A single point projection gives false certainty, so the exposure belongs in a range. The $306,000 is a median spread evenly across a year still ahead of him. The actual figure depends on how slowly his clients move this month and by how much. Cash flow is decided in the tail of the distribution, and the median describes the middle.
Pull one ratio
Pull one quarter first. Fees, interest, and draw are in the books, and owner hours come from the calendar.
Contribution per owner hour after carrying cost = fees collected on the book this quarter, less the variable cost of delivering the work, less the interest on borrowing used to cover the wait and the owner draw deferred to cover it ÷ owner hours worked this quarter
Run it by client first, then by matter class. Use the same definitions next quarter, then run it again. The direction across quarters carries more information than any single quarter.
Where this goes
This issue identifies the mechanism and the zone. It leaves the reserve, the size of the credit line, and the collections policy open, since Stage 1 is incomplete and a partial remedy on an incomplete read adds risk.
Revenue gets earned when the work is done and spent when the cash arrives, and contribution per owner hour gets measured at the second moment.
If you want to see where your own firm stands before guessing, the Growth Intelligence Scorecard is free. It works from figures you can give in ranges from memory, so the read is provisional with reconciliation to follow.
This letter is not legal advice or accounting advice.
The analysis in this letter is produced under Revenue Intelligence & Decision Architecture (RIDA), the proprietary economic discipline B.L. Sheets & Co. runs on and runs for the firms it serves. The doctrine, the case record, and the engagement formats are at blsheets.co.
Sources. Clio, Law Firm KPIs and Benchmarks (2025), for realization, collection and total lockup medians. The attorney is a composite drawn from engagement work. Figures are rounded and identifying details are withheld under the standing rule. The exposure figures apply a median to a single book and show a mechanism. They leave the right reserve or credit line for a one-owner firm to that firm’s own numbers.