I became a lawyer because I enjoy practicing law.
But, as many who have opened their own law firms know, running a business means wearing a few different hats. And, one of the most uncomfortable hats you might wear is one of an accountant.
Legal firms present unique challenges, even for professional accountants. One reason is the complicated nature of the law. Legal accounting requirements involve so much more than “money in, money out.” Client trust accounts, recovery of costs advanced, alternative fee arrangements, and other intricate law firm accounting standards can make some CPAs’ heads spin.
So unless you are independently wealthy and plan to work strictly pro bono, you must understand how to keep your business afloat. Good accounting practices are more than important – they will provide the life preserver your business will cling to in choppy waters.
All Dollars Are Not Created Equal
All funds received by your firm are not categorized the same way. As you may know, retainers and client trust accounts are legally not the property of the firm until work has been done, invoiced, and approved by the client.
Those monies should be kept separately from an account being used for general expenses and money paid on invoices. Personal injury settlements should also be kept isolated from funds belonging to the firm. Keeping everything discrete will avoid problems with compliance issues, as well as improve accounting clarity.
Timing Is Everything: Clock Your Hours
From research to client calls to contract negotiations – a lawyer’s time is a client’s money well spent. Or, at least it should be. Accurately capturing the billable hours of everyone in your office is more critical than ever as clients become increasingly educated on standard rates and competitive pricing across the industry.
Work-in-progress tracking requires a commitment from all lawyers and your team’s supporting staff. Without a clear view to differentiate billed hours versus what is documented in each invoice, your firm won’t know where earnings might be lost. Choose accounting software created especially for law firms to track hours and billing; it will distinguish between items like indirect and direct matter costs, reimbursements versus regular billings and alternative fee arrangements. And, this may go without saying, but good software will ensure client invoices are being paid timely and not languishing.
Decrease Overhead to Gain the Upper Hand
Most lawyers heading up small firms know that while revenue may be variable each month, expenses tend to be fixed. Rent and electricity are non-negotiable – even for the best lawyers! Working to keep overhead down and focusing on profitability rank high on the to-do lists of most law firms.
Maintain a central database system to allow you to keep accounting and practice management in one place. This can cut down on manual data entry and reduce discrepancies. Invest in technology to improve the efficacy of your office. Automate your legal documents with legal form software. Submit bills electronically and cut down on paper and ink.
Good accounting practices may not be the most exciting part of running a law firm, but if profitability is high on your priority list (and I assume it is), it’s a critical step towards your firm’s success.
And, if you’d like to learn more about how our automated document assembly software can make your law office more efficient and profitable, you should consider a free trial of JurisDOC. There’s no better way to see how quickly you can save time — and money!