Law Firm Practice Area - Personal Injury Law Firms
Next up is a personal injury firm. Many personal injury attorneys I've spoken to have said, "My practice area is straightforward, and I don't need any external software because the trust tracking happens at the end of the case." While this is true, the one thing that attorneys forget is these cases usually take multiple years to come to fruition. There is a lot to track over the years it takes for the case to settle.
These cases can require tracking many expenses along the way from medical expenses to filing fees, to depositions and hearing costs. Add to that the length of time it takes to settle and it is imperative that the bookkeeper mark these as billable to the client/matter, if there is no law firm tech in place. One missed cost is an expense to the firm.
Client costs loans
The complexities of accounting for this type of practice area are when a firm adds a loan company and borrows money to pay for the client's advance costs. These fees need to be tracked. The loans are paid off and the interest is billed back to the client at the time of the matter settling.
As the accountant or bookkeeper on staff, you want to make sure you get to see a copy of the initial document that a client signed, so you know the client agreement. You'll also have to ask for settlement sheets as a settlement process, and the money flows in. There's sometimes an agreement of 1/3, 1/3, and 1/3, but there are also certain circumstances where that might vary.
Client costs are usually covered first, and then there is a percentage for the legal fees, and the client gets the remainder. But again, looking at that client agreement will provide you with some insight and how the firm operates. Every state has different rules. You need to look at the bar association website regarding contingency matters.
In addition to case costs, cash flow is the major pain point with a personal injury firm. These firms have to front the client costs before the matter settles. That ends up with tracking a lot of advanced client costs and operating cash out the door during the time the matter progresses. Remember, advanced client costs are considered mini loans to the client. In that respect, the law firm is spending its operating capital to pay for expenses for a client case. If they lose the matter, those expenses become firm expenses. They get moved down from the advance client cost account to firm expenses.
It's been my experience that when working with personal injury firms, most of these firms win more than they lose. A great running personal injury firm will have a workflow that includes onboarding the matter and then attempting to settle the case quickly. It is in the best interest of the law firm to do so. Carrying a heavy list of paid-out client expenses can be daunting to a personal injury firm.
It is always a best practice to make sure that the settlement check, normally from an insurance company, clears before you payout to the client or even pay yourself the legal fees. I have seen firms ship this money off too quickly, only to have the insurance settlement check bounce. These payouts can be for very large amounts. Keep this in mind when processing the fees earned. Also, check with your local bar association for guidelines and requirements.
KPI: Matter profitability
These firms tend to have an array of staff members. A firm should look at the profitability of each matter to see how the firm is doing per case. It's critical that the person doing the accounting track those advanced client costs to the penny.
The marketing KPI is also pretty hefty. The firm must get its name out there. A lot of these firms advertise on expensive billboards. I've seen some interesting ways of tracking clients via Facebook ads using locations near the hospital as a place to find clients.
This tends to be one of the more profitable practice areas if run correctly. Proper management of the case or matter is critical.
I hope this is helpful regarding working with accounting nuances with a personal injury attorney.
Don't skimp on legal tech unless you are a solo law firm. There's plenty of software out there that can assist. The most often used software is Case Peer, but it doesn't integrate with QuickBooks. I like LeanLaw because of a two-way sync, but I also have firms that use Clio. Neither software is powerful in contingency matters, but for tracking client costs, they are a must! Dext is another software that I don't want to live without when it comes to working with contingency attorneys.
Are you an attorney and a personal injury firm that needs assistance with your bookkeeping? You've come to the right place. Contact us today!