10 Tips for a More Profitable 2023 for your Law Firm
OK, you filed your taxes, or you've at least submitted your records to the tax professional for processing. It feels like a relief unless you didn't pay enough estimated taxes, and then you might be sitting here going. Why didn't I plan better? How can we make 2023 a more profitable year for your law firm?
Well, I have ten excellent tips that will help get you there.
- Keep accurate and up-to-date records: Proper record-keeping is essential for any business, and law firms are no exception. Failing to maintain accurate and up-to-date records can lead to financial mistakes and difficulties in tracking the firm's financial performance. As we are knee-deep in clean-up jobs here at our accounting firm, the attorneys often get so busy with their work that they don't take the time to ensure things are booked in balance. They should not be an annual event. And real-time data is paramount to a successful law practice. It's time to get out a desktop and get into an online product that will help you automate many entries and make your life easier, but with technology assisting and making it more accurate.
- Reconcile accounts regularly: I'd be a wealthy lady if I had a dollar for every time an attorney told me they didn't need to reconcile because the bank was connected. We hear this from clients who think everything is perfect because the bank is connected to the transactions match. If you've ever sat through a bar on it, you'll know that you must reconcile your box for accuracy. Monthly reconciling accounts helps ensure that the firm's financial records are accurate and that everything is correct. Failing to reconcile accounts can lead to financial problems and make it more difficult to identify issues that need to be addressed.
- Managing accounts receivable: this trend surprised me when I started to get into working exclusively with attorneys. They need to follow up on their accounts receivable when it remains unpaid. They avoided it like the plague. And it sits uncollected. That's money that's owed to you in the firm. I see it with larger firms too, where the attorneys on staff need to follow up. That should be looked at and analyzed regarding staff attorney production. Neglecting to manage accounts receivable can lead to problems with cash flow and result in lost revenue. Law firms should have systems to track and promptly follow up on unpaid invoices.
- Track time and expenses accurately: Missed fees can cost the firm money, especially in personal injury law firms. We see that expenses can fall into the cracks if they're not tracked immediately and managed adequately. Accurate time and expense tracking are critical for law firms that bill hourly. Failing to track time and expenses accurately can result in lost revenue and make it more challenging to bill clients accurately. Failing to track time and expenses accurately can result in lost revenue and make it more difficult to bill clients accurately. Tracking time and costs is where a good workflow and process will save you.
- Review financial reports monthly: Law firms should review financial statements regularly to stay informed about the firm's financial performance. Neglecting to review financial information can make it more difficult to identify problems and make informed business decisions.
- Have a budget: It is so easy to get busy working in your business that you don't work on your business. Having that monthly attorney financial meeting will help you understand where you're going with your records. Not only should you have a reasonable budget in place for me, but you should also have some goals set and look toward forecasting. And by doing both of these steps, budgets, and forecasting, they're not just one and done. You need to revisit them and make sure they align with your goals. Law firms should review financial reports regularly to stay informed about the firm's financial performance. Neglecting to review financial statements can make it more difficult to identify problems and make informed business decisions.
- Implement proper financial controls: we've all seen horror stories about firms getting ripped off. Controls are necessary to ensure you keep your finances in order and protected. Financial controls include separating financial responsibilities, establishing policies and procedures, and implementing internal controls to prevent errors or fraud. The larger the firm, the morning from war controls. It's a sad fact that many law firms today don't have fraud protection in place. And this comes down to even protecting the firm from cyber attacks—so outside sources. Law firms should have robust financial controls to ensure that their financial operations are run efficiently and accurately.
- Keep a close eye on cash flow: having an excellent financial team to assist you with cash flow is critical, and running a fine-tuned law practice is vital. It's hard to wear all hats, and this is one you want from an established firm with an excellent working knowledge of the industry. There are lots of tools out there for cash flow, but if you need to learn how to interpret the data, what's the point? Law firms should monitor their cash flow to ensure they have sufficient funds to meet their financial obligations. Bookkeepers should be proactive in forecasting cash flow and identifying any potential issues that may arise.
- Hire a professional: Yes! Hiring someone that knows bookkeeping and accounting allows you to free up time to practice law. It will also take this burden off your shoulders.
- Regularly review regulations: how many of us take the time to look at and review the rules or any changes from the Bar Association? For example, California recently had a change you may have yet to see because it rolled out quietly:
“Beginning in December 2022, attorneys will be able to fulfill their reporting requirements through My State Bar Profile; law firms and organizations will be able to provide account information for attorneys through agency billing. To register a CTA, including IOLTA, you will need to report the year-end balance on December 31 of the reporting period. You should use the bank balance on that date (i.e., the balance including only cleared transactions).
For 2023, the State Bar will not impose penalties for failure to comply with CTAPP requirements until after April 3. Penalties for other requirements will still be imposed in February. You can pay licensing fees and report MCLE compliance before completing your CTAPP reporting obligations. In future years, pursuant to rule 2.5 of the Rules of the State Bar, the CTAPP reporting deadline will be February 1.
Keeping abreast of local bar rules is a great tip for the attorney and the bookkeeper to review the regulations from the American Bar Association and your local Bar Association. It is important for bookkeepers to be aware of these and to ensure that the firm complies”.
I know that's a lot of tips to offer, but it's the things we see on a day-to-day basis that we find we can help out law firms to become more profitable for 2023. If you're sitting back looking at 2022 and thinking I should have done better, now is the time. Let's not look too much in the rearview mirror and look forward to a successful future. Planning is everything. A great financial strategy with goals and check-ins will ensure you stay on track.
If you need assistance from us on this service, we provide that. We work with many law firms and have a solid working knowledge of legal accounting.