It does not matter whether you own a large personal injury law firm or a small paralegal law firm; when operating your personal injury law firm you may not give accounting the attention it deserves. Keep in mind that staying compliant is important for both the success and survival of your law business. According to the New York City Law Department, most lawyers are often susceptible to compliance issues, especially with legal accounting. This is because:
• Lawyers are not accountants.
• Accountants are not personal injury attorneys, and they cannot understand the different elements associated with legal accounting and their differences with other generic businesses.
Legal accounting is more involved and complex than understanding loans, money in, and money out. For you to operate a successful and compliant law firm you should understand the particulars of escrow accounting, direct and indirect matter costs, trust fund accounting, and three-way reconciliation. Having all this in mind be mindful of these six tips. Failing to be mindful of them can seal the fate of your firm. In most cases, instead of cancellation the penalty is usually disbarment.
Maintain only audit ready trust accounts
Law firms often use retainers to secure payment from clients. Your personal injury law firm also handles clients’ settlements, and most of the time your firm will have several clients with different trust ledgers. It’s important that such trust funds aren’t used to pay the law firms expenses or commingled with other accounts. Ensure that you reconcile all accounts in a monthly basis. In case of an audit this is the first place an auditor will start.
Avoid double data entry
Most law firms have separate management and business accounting systems. However, the problem is that sometimes data requires being entered in both systems. A problem can easily arise when a firm accepts credit card because the money trail will easily get lost. It means that if you put all your business and management accounting in one system, you will only have to enter data once hence minimizing costly errors and saving time.
Consider the firm’s expenses
When your firm focus on client billing it’s easy to forget your expenses. Some of the expenses include payroll, office lease, the internet, phone, and much more. When you have a good understanding of some of the overhead costs of running your law firm you’ll have more information on how many clients you should bill. You should also be able to differentiate between the direct and indirect costs. Reimbursement for your indirect costs needs different accounting than direct costs.
Allocate revenue receipts in an orderly manner
When some of your invoices aren’t paid in full ensure that your law firm allocates the revenue receipts correctly. Before your firm applies these funds to income, ensure you first pay for costs and liabilities. This can be easy if you are using legal billing software.
Track income by practice area
Although you specialize in personal injury cases, you may have different practice areas, for instance, truck accident, dog bite, or slip and fall personal injury practice areas. Furthermore, you bill clients differently because each case is unique. When you track income by the type of case or practice, you will be able to determine the practice area that generates more income. This will help maximize profits for your business by being able to make data driven decisions.
Rather than using general purpose accounting software, employ the use of legal billing software
For your law firm to remain compliant, you have to stop using general purpose law firm billing software. To become successful while using this software, you will require a high level of customization which can cost you both money and time. The complete law firm billing software would be easier to use compared to using spreadsheets, word processors, or manual checkbooks.
Lawyers have varying needs that have to be met for them to meet their ethical and professional responsibilities to clients. Ensure that you consider these needs when selecting your law firm billing software.