As we prepare to say goodbye to 2017, it’s important to take some time to reflect on the months gone by. Around this time, we often think about making improvements to our personal lives: join the gym; read more; learn a new language. And while this is all well and good, the health of your law firm should also be a top consideration. What resolutions might you need to make to re-energize and refocus your practice for the New Year?
While legal accounting may not be the first area that comes to mind, neglecting this element can spell big trouble for your practice, so it should be a priority. Here, we’ll walk you through the 6 steps you need to take to drastically improve your firm’s legal accounting processes.
Step 1: Enter Data Only Once
Whenever a firm is looking to boost workflow and efficiency, reducing the number of times a task is “touched” (i.e. data is entered) is critical. Keying errors happen, and since law practice management and business accounting are often managed using two separate systems, it’s essential that the same data appear in both. Imagine what it’s like when a mistake is made in this scenario: finding it can become a nightmare often taking multiple, costly hours to track down the source of the error and when it is found, correcting this error can be tedious as export/imports/syncs are unstable and unreliable.
In addition to saving time and increasing the efficiency of your firm, combining activities in one area will also reduce the risk of error.
Step 2: Handle Client Funds with Care
Whether funds are being held in a trust or business account (if allowed) proper due diligence is required. Above all always remember that client funds are not the law firm’s until earned by the law firm.
There are two types of client funds: operating retainers, which are advances received into the operating account, and trust funds, which can be retainers for client funds received into the trust account. Whichever type of account your firm uses, it’s imperative that your clients’ funds remain segregated and tracked accurately.
Note that operating retainers are allowed only in select states; be sure to check your state requirements prior to using operating retainers.
Step 3: Stay on Top of Client Costs
Commonly, matter expenses are paid from the accounting software, but then not posted to the matter in practice management. This results in “slippage of income,” or failing to post at the time the expense is incurred and overlooking overhead expenses.
Who wants to lose out on income due to a complicated setup? Make sure those costs are booked from an accounting standpoint and passed through as an expense card simultaneously.
Step 4: Ensure Payments are Being Allocated Correctly
Even the most customizable general accounting software doesn’t support correct, automatic allocation of invoice payments, which becomes even more significant when invoices are not paid in full. Liabilities and costs must be paid first and prior to applying anything to income. When using general accounting software, the process requires splitting a single invoice into several and applying payments accordingly, even with export/imports or syncs from a practice management application. Using a legal-specific solution can make this process much simpler on all fronts.
Step 5: Gain Tight Control Over Credit Card Payment Process
Credit cards are a necessary convenience for both you and your client. However, it is important to know the accounting challenges that can arise if the right tools/providers are not being utilized, including those caused by merchant service providers as well as by internal setup. Whether you currently accept credit cards or are considering it for the upcoming year, make sure to find a merchant provider that understands the specific needs of a law firm such as LawPay.
Step 6: Start Tracking Income by Party & Practice Area
When there’s a partnership involved, income usually needs to be tracked by party, and specifically, by the originating attorney, responsible attorney, work attorney, and timekeeper(s). It goes without saying that there are many people that contribute to a matter. Not only would it be helpful to know who brought in what, but tracking income by party and practice area also allows you to base compensation on this information. However, this is only possible when billing and accounting are handled in tandem.
Legal accounting is an integral piece of your business. And while we understand that most attorneys are not also accountants, it’s important to keep these processes in mind as you make decisions for your firm. Are you ready to take the steps toward better legal bookkeeping in 2018? Take a deep dive into these six steps by viewing our recent ABA Industry Insight webinar ‘A 6-Step Guide to Better Legal Bookkeeping.’