How Law Firm Accounting Professionals Succeed
Accounting professionals are poised to help law firms operate more efficiently: They can help managing partners and principal attorneys get a better grasp of their business – with direct ramifications to cash flow, attorney compensation, staff efficiency, client profitability and compliance with their state’s bar association as to how they manage their funds held in trust.
It’s more than accounting.
When financial data is organized and well prepared, it can offer critical insights into the operations of a firm.
Most lawyers run their law practices from their gut, assessing their cash flow in real time based on their work in progress and receivables. Accounting professionals won’t necessarily stop that, but can augment gut feelings with data. Accountants and bookkeepers have the opportunity to lay the foundation, establishing best practices so that the attorney can focus on his or her practice. A tool like QuickBooks Online paired with LeanLaw can offer a more robust view of timekeeper efficiency, which are the good clients (fiscally speaking) and the firm’s profitability.
Another example is helping the lawyer tune the invoice so that the data is presented in the most effective way. This also creates the opportunity to add electronic payments such as the QuickBooks Payment network. The value add is that the more effective the client’s invoice the more quickly she will receive payment. This helps both the attorney and the client, making the attorney’s practice feel more professional.
An accounting professional can make a lawyer’s life better and help her run the law firm more efficiently by thinking beyond bookkeeping and accounting: showing how best practices can stabilize and offer insights into the practice. This is what will differentiate your accounting practice from others. You already understand this because the same principles apply to your work. Time trackers, professional services invoices, good clients and bad ones… your work is similar to theirs.
Selecting and implementing the right tools.
Accounting professionals can help law firms choose which accounting tools will best serve them and then teach the law firm how to use them so that they become institutionalized. Attorneys look to the accountant to validate the timekeeping to invoicing workflow as it relates to accounting. There are other areas that accounting professionals can be familiar with but you don’t need to be an expert — just validate that the tool you suggest can handle their accounting needs.
- The mechanics of how a software works.
- Tracking time,
- accommodating how the firm bills
- hourly,
- fixed-fee,
- hybrid,
- retainers,
- contingency
The attorney will understand if and how she likes to track time, but it’s your job to make sure the software can produce and present an invoice that the attorney can approve. A secondary concern is how that tool integrates with the accounting. Does it reflect real time financials, does it sync on demand or is it manual? All of these play into the work needed to make the workflow operate efficiently.
- Trust Accounting.
- Knowing the basics of the rules for the state in which the attorney practices,
- Does the accounting and invoicing tool accommodate the requirements for the firm to be compliant?
- If so, what will the workflow be based on the lifecycle of a client trust account?
Remember, there are different situations where money is held in trust. The most common is in the form of a retainer. But lawyers will use trust accounts to manage transactional activities and/or settlements.
- Reporting.
This is commonly overlooked as most accounting professionals limit their thinking to financial reports such as a P&L, Balance Sheet or an accounts receivable report. In addition to these reports, attorneys needs reports related to the:- timekeeper,
- partner compensations,
- originating attorney reports and in some instances
- client profitability.
- Integration & Migration.
Helping the firm not only select the tool, but developing the roadmap for changing.- Schedules,
- training,
- data migration,
- best practices.
All of this work related to the migration is an opportunity to create the proper foundation, both technically and fiscally. It can also stage how the relationship with the law firm will work and where to highlight your value-add. By the way, this is a great opportunity to join forces with an IT firm that can assist with other aspects of technical migration. While your firm will lead on the accounting side, the IT firm can assist with document or email migrations. More value-add for the law firm and possible referrals for your firm.
Best Accounting Practices for Law Firms – A Checklist
You can also help establish best practices for basic bookkeeping and other transactional activities for the flow of money in and out of a legal practice. This is critical, as the firm/attorney wants to be told what to do. This is a huge opportunity! In some instances you may be performing the bookkeeping and in others, the firm will have someone in-house, doing some or all of this work. Regardless, you get to lay down the rules as to how the bookkeeping gets done. This puts you in a position to get the right data into the accounting engine. This will translate into better reporting and less manual work.
Workflows to consider systemizing:
- The Invoicing Workflow
- Client onboarding and setup
- Receiving trust or retainers
- Staying compliant to ABA rules (audit ready trust accounting)
- Tracking staff time
- Billed, Non-billed, How much time and when – this will paint a picture as to how effective a timekeeper is.
- Fixed fees vs. hourly or hybrid fees
- This kind of flexibility helps the lawyer find the best way to bill the client for profitability and affordability
- Reimbursable expenses or client costs
- Invoice presentation and delivery
- Receiving payment by check or electronically
- Making payments from trust.
- Accounts Payable Workflow
- Reconciliation and Reports
- 3-way trust reconciliation
- Fiscal Compliance
- You’ll need to know the proper architecture for handling trust according to ABA standards in QuickBooks Online – we have two videos that can show you the overview – the easy way (with LeanLaw) and the hard way (without LeanLaw)
- Proper best practices for trust requests, the handling the transactions of funds held in trust, and the reporting of trust.
- How to setup the trust architecture in the general ledger. (liability ledger) in QuickBooks Online
- How to ask for trust request (see video)
- The trust request form
- How to receive the retainer – check or electronically
- What / How to memorialize
- How to deposit
- How to keep track of trust balances against active matters
- How to disperse funds held in trust
- Paying an invoice from trust
- Paying a fee related to a matter directly from trust
- Disbursing trust money for a settlement or refunding back to client.
- 3-Way Trust reconciliation
- How to generate trust reports
- How to archive trust from an accounting perspective
- Outsource the invoice production and AR for them. You could do the invoice for them — service that you can offer — it’s all online, they would submit timekeeping reports
- Help them interpret
- The health of the firm
- Typical financial reports (P&L, balance sheet, AR, cash flow)
- The health of the law firm’s client
- Is it profitable?
- AR collected?
- Trust balance
- Timekeeper reports
- The health of their law firm staff
- Staff productivity
- Time billable vs. billed
- Staff productivity
- The health of the firm
LeanLaw works with hundreds of lawyers every day. Our mission is to help every law firm create a lean practice, unencumbered by log jammed workflows and inefficient software. If you have a question about law firm efficiency, contact us. We have probably already thought about a solution for that exact problem.
And to get a better sense of how LeanLaw legal software can improve your law firm client’s operations, sign up for a free trial and learn more about our LeanLaw Accounting Pros program.
Next, learn how to get law firm clients for your accounting firm.
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