We can all agree that 2020 has been chaotic and unpredictable, but that doesn’t mean your firm’s year-end tasks have to follow suit. In spite of upended routines, now is the time to catch up on delayed activities and plan ahead for the year-end. We don’t know exactly what the next year will bring, but being prepared will help you put your best foot forward as we enter 2021.
1. Keep matter-centric records
Many firms breeze past this one, thinking it’s already done. But there’s so much information that can be linked to a matter, it’s easy to overlook pieces. Meetings, tasks, documents, invoices, payments, trust balances – you get the picture.
A centralized record is essential. It makes for more efficient work in the future, and it ensures the firm adheres to compliance requirements around the tight association with client activity and trust funds management.
2. Audits: always be prepared
All businesses face the possibility of an audit. While we recommend working with a tax accountant, it’s also good to keep in mind the importance of detailed recording (and proof) of your expenses and income sources.
Law firms should also be prepared for trust account audits. As a lawyer, it’s your responsibility to know what your local bar association requires, what activity might trigger an audit, and what documentation you could be asked to produce.
In the event of an audit, last minute bookkeeping will look sloppy at best. An auditor may also see it as a reason to dig deeper. Being prepared for an audit can make the process a little less painful.
3. Stay on top of reconciliation
Reconciliation is the monthly task of comparing your book records with your bank records. Not unlike organizing all the random papers that accumulate on your desk, it can be tempting to put off but should be done regularly.
Catching mistakes soon after they happen makes them much easier to fix. This holds true for all bank accounts, but especially trust accounts, as you are required to manage your clients’ funds responsibly. If you aren’t completing the reconciliations yourself, require reporting each month from your accounting staff.
4. Use tools to meet legal requirements
Trust compliance and practice area requirements make law firm records and bookkeeping different from other businesses’.
You are responsible for understanding local compliance requirements and the specific regulations of your field. But that doesn’t mean you should be the one setting up the matter or entering trust transactions. After all, your time is valuable.
Instead, make the most of your time by using tools that fit your needs. Leverage tools to provide proper setup, reduce common mistakes, and simplify your daily workflows. Your unique requirements may not be met by every tool. Take a moment to take stock so that you can assess challenges and find effective solutions.
5. Fine-tune your General Ledger accounts
At the heart of your financial reporting lies the General Ledger. Like any engine, it needs a little thought and attention from time to time. If you’ve been in the business for decades, gradual shifts may mean that certain accounts are never used and could be simplified. Likewise, newer firms may benefit from tightening up the process now that things are up and running.
With the help of your accounting staff, decide which categories make sense to track and which are required for overall compliance. How are your income and expenses detailed? Are they simplifying or complicating your tax reporting? Are matter costs and client funds being recorded appropriately?
If you review and plan changes now, you’ll be ready to implement them at the start of 2021.
6. Don’t put off collections
Money owed comes with the territory for service businesses. Whether for reimbursement or time spent on a case, it’s hard to enlist a collections agent without harming client relationships. And waiving balances won’t help your bottom line. Rather than dragging things out until the end of the year when stress and stakes will mount, collect costs now and review your billing process.
- Bill regularly?
- Prevent balances from getting too high?
- Offer organized invoices, with contact information?
- Provide clear payment options, including electronically?
Delinquent clients are inevitable, but billing tools can help by sending out automated reminders, which saves you time and effort.
7. Maintain evergreen retainers
Client retainers run out. Evergreen refers to preventing your retainer balances from depleting. This approach helps firms stay ahead of collections issues.
To do this, you need to know how quickly a retainer can be used up. Once you know the matter’s burn rate, you can decide what balance should trigger replenishment. Legal billing tools can streamline this process and notify clients when it’s time to replenish.
8. Business planning is part of the job
You may be a lawyer, but you’re a business owner too. Tending to your business may not be your strength or passion, but ignoring it won’t make it go away. It’s worth thinking about your goals and creating the plans with actionable steps to get you there.
Some areas to look at for productivity and profitability:
- The ratio of unbilled administrative time per case
- Breakdown of profits and costs by practice area or lawyer
- Average aging of accounts receivable
- The percentage of clients that come through referral
Data points like these can identify gaps and successes and help guide next year’s decisions.
9. Clean up duplicate data entry
With so much information to track, it’s easy to have the same details cropping up in multiple places – on paper, in a billing system or an accounting tool, or even in spreadsheets. It’s tempting to put off data entry housekeeping. But this passive approach ultimately creates time-wasting inefficiencies.
And each time information is re-entered, it opens another opportunity for error. Don’t cost yourself accuracy, especially around financial data. Identify duplicate entries, and leverage tools and processes to eliminate redundancies.
10. Remote staff are part of the team
With the chaos of 2020, more staff are working from home than ever before. In this environment, good technology can make all the difference in communication, collaboration, routine tasks, and management.
Small businesses that outsource bookkeeping and year-end accounting know this especially well. The better you can work remotely, the wiser you’ll be in hiring the best resources.
Make it easier on your team. Simplify workflow, enhance collaboration and data accuracy, and use modern cloud tools which allow access, no matter where your staff are.
A streamlined process
With these ten steps, you’re well on your way to getting your year-end process dialed. Watch our on-demand webinar, 10 Tips to Streamline Your Year-end Processes, for a little more detail.
If your firm’s financials are streamlined at the end of 2020, 2021 can start off on the right foot.