You went to law school, not accounting school. But, as a lawyer, you need to pay close attention to law firm financials in order to run a profitable firm.
That means staying organized, using the right tools, and knowing your value. It’s simpler than you think—you just need to know where to start.
Below are a few resolutions you can make to help set your law firm up for financial success in 2017.
1. Know where you stand
First things first: Get an overview of your current finances and how they’re organized. For example:
- Look at your Open Matters (do this with a Matters Report in Clio) and see whether there are any outstanding balances.
- Create a chart of accounts if you don’t have one already. This is a list of all the different types of accounts in your accounting system (e.g., cash in bank, petty cash, accounts payable, etc.). You can find example charts of accounts here and here.
- Put together a list of all the legal accounting tools that you currently use
- Take note of your current invoicing and billing practices. How long do you wait before billing a client for your services? How long do you wait before following up?
Look at our Complete Guide to Year-End Law Firm Financials for a full list of points to look at.
2. Create a budget
Setting a realistic budget is key for your firm’s success. Whether you’re starting up a new practice or just putting together another annual plan, make sure you approach your budget with fresh eyes and realistic expectations.
Consider both internal and external factors, and stick to a budget that works with your overall business plan. Do you have strict budget limits? Are you hoping to grow your firm this year? If so, how much will you invest in marketing, business development, and new hardware or software that will enable firm growth?
Start by using last year’s numbers as a benchmark (this is where getting an idea of where you stand will come in handy). If you had a budget last year, compare that to your actual expenses and returns as well. This will help you make a more realistic projection of your anticipated costs and revenues for the coming year.
Nothing is guaranteed—your firm could experience unanticipated losses or wild successes in 2017—but having a solid budget will at least give you a place to start when deciding on where to spend your money.
3. Start using an accounting tool
If you don’t use a legal accounting tool, it’s time to make a change. Rather than outsourcing your accounting needs and depending on someone else, equip yourself with the necessary tools to be your own bookkeeper.
Accounting can be complex, but it’s a necessary skill for running a profitable business. And, there are plenty of solutions that can simplify accounting and help prevent clerical and ethical errors.
Not sure which accounting solutions are right for you? Try Quickbooks Online or Xero to start. (Bonus: These tools integrate seamlessly with Clio.)
4. Re-evaluate your rates
As a lawyer, you’re constantly growing your skill set and gaining more experience. If you’re a real go-getter, you may even speak at events and write guest blog posts to build your personal brand.
Do your current rates reflect your growing value?
Don’t be afraid to up your fees if you’re providing more for your clients. For your firm to be as profitable as possible, you need to charge what you’re worth.
If you’re not sure where to start, take a look at the Legal Trends Report to find average hourly billable rates for your state and practice area. To supplement that, talk to other attorneys in your area about the rates they charge.
Finally, review the art of negotiation. Know how to explain your value to prospective clients, and you’ll be better positioned to keep those that might otherwise walk away.
5. Start accepting online credit card payments
We included this tip on our broader list of New Year’s resolutions for lawyers for 2017, but it’s worth mentioning again. Why? Lawyers who accept credit cards get paid 11 days faster than those who only accept payment by cheque, according to the Legal Trends Report.
In other words, accepting credit cards can help your firm’s cash flow. Also, we’re betting your clients will appreciate the convenience of paying by card!
Bonus tip: Ditch snail mail and send your bills via email. This will help your firm cut down on time-to-payment even more.