“The word accounting comes from the word accountability. If you are going to be rich, you need to be accountable for your money.” – Robert Kiyosaki
Law firms find themselves subjected to elevated expectations when compared to other businesses, possibly due to the perception of their cause as just and noble. While the reasons behind these standards may vary, it is undeniable that law firms face significant pressure to uphold financial compliance with accounting regulations and legal mandates. Accounting software tailored for the specific needs of law firms plays a crucial role in guaranteeing adherence to these requirements, empowering efficient tracking of revenues and expenses along the way.
Accurate revenue tracking allows law firms to measure their financial performance, identify areas of profitability, and make informed decisions regarding pricing, resource allocation, and growth strategies. Expense tracking enables law firms to control costs, identify inefficiencies, and optimize operational expenses.
Law firm accounting software facilitates accurate financial record keeping, insightful financial planning, forecasting, and strategic decision-making so you gain control of your finances and nurture profitability. You might find that by controlling your finances and projecting calm you attract clients of a high caliber. Your reputation grows and profits are going only one way and that is up.
10 Key Tips For Successful Revenue And Expense Tracking:
However, profits don’t grow by themselves. You need to capitalize on the functionality of your accounting software to successfully manage your finances and build a thriving law practice. These tips will help you achieve this.
1. Create A Budget
A budget is essential to track your income and expenses. A realistic budget provides the structure for successful financial planning. It provides a clear view of your income and operating expenses so you can identify and address shortfalls (or excesses) and set new limits or goals.
For example, you can eliminate Starbucks coffee in the mornings and bring a flask of coffee from home or buy a filter coffee machine that will pay for itself in a matter of weeks.
This simple sacrifice could enable you to reach your goal to buy two tailor-made suits for important business meetings. First impressions count, after all.
With a handle on your income and expenses, you can anticipate once-off expenses. You can allocate resources effectively and absorb the cost by generating additional income or implementing further cost-saving measures.
2. Use A Reliable Accounting Software System
There are many accounting software options, but you need software technology for law firms, specifically. Your chosen package should allow you to add your budget with ease, without having to go down the rabbit hole to find payroll data.
Ask some questions upfront:
- Is training necessary?
- Do they provide training (at extra cost)?
Find out about their customer support:
- Are they available 24/7?
- Are they staffed by experienced software users?
- Do they offer call-outs, etc.?
In the end, the best software is the one that matches your requirements and which you find intuitively easy. Two things to bear in mind; software must be customizable to your unique needs, and the vendor must be reputable and reliable.
3. Create A Detailed Chart Of Accounts
It’s crucial to know what impacts your finances and how the data is organized. It’s recommended that you create a chart that divides your accounts into five core categories:
- Owner’s equity
You need balance sheets that show:
- Stockholders equity
You need income statements that show:
- Revenue streams
Don’t worry if your brain doesn’t do numbers. Your accountant will help you make sense of all the information. Altogether, you’ll get to see the state of your finances on a macro- and micro-level.
4. Set Up Automated Tracking Systems For Income And Expenses
Accounting software should include a feature that automates time-consuming, repetitive tasks that don’t need any expertise. Automated income and expense tracking not only frees up time that can be devoted to billable hours, but it also reduces the risk of human error.
You’re looking for a system that lightens the load, lessens the cost, and makes your business more competitive in the market.
5. Establish Clear Policies And Procedures For Expense Management
If you want to rein in expenses and get a tighter hold on the purse strings, you must create and adhere to budget policies. For example:
- You must approve all expenses over $50.
- There’s a maximum travel allowance that includes transport, accommodation, and all three meals. How the allowance is used is up to the individual, but they won’t get any more.
- Improve petty cash management. Insist on notes tracking who uses how much and how often. (You might find that you are the biggest petty cash spender.)
- Enforce penalties for policy infringement.
Disciplinary action must be applied equally. What constitutes a violation among lower-tier staff applies to upper management. What applies to well-off employees applies to those on a very tight budget (although, it’s a good idea to offer assistance to employees in a bind).
6. Monitor And Reconcile Accounts Regularly
It’s essential to stay on top of your finances, which requires regular monitoring and reconciliation. Meet with your accountant every quarter at least, and go over the trust bank account, trust ledger, and client ledgers.
Not only is this good business practice, but it’s also required by every state bar in the US.
7. Use Project And Client Tracking To Allocate Costs Accurately
Your software ought to enable time and mileage tracking so you can get an accurate view of how much time is really devoted to clients vs. how much they’re billed. You’ll also see where revenue comes from;
- Monthly retainers
- Active work solicitation
This enables you to change your billing system so your clients are invoiced accurately and correctly, and you can track transactions that led to the fees charged.
You’ll also determine whether you need a short-term aggressive (expensive) marketing campaign or a regular long-term (cheaper) reminder that you’re in the market and no case is too big or too small.
8. Manage Your Trust Accounts Effectively
If you can manage your law accounts, you can manage your trust accounts, to a reasonable degree. Steps to take include:
- Track each transaction and communication with clients to keep records updated in real time.
- Structure your budget and manage your spending so that you don’t create a growing overdraft.
In this manner, you can also quickly produce all information needed if you’re ever audited.
Software ensures that all your records are logged and reports generated in a manner that complies with industry, state, and national regulations.
9: Set Up An Emergency Fund
We’re all supposed to save for a rainy day, but that’s often easier said than done when there are clouds gathering on the horizon. Nevertheless, it’s reasonable to assume at some point your clients might go through a tough financial patch and your invoices won’t be at the top of their list of priorities.
This obviously affects your income and cash flow. So while you should actively try to recover lost income, you should also have the funds available to absorb the sudden loss.
Ideally, you should aim to have an emergency account with sufficient funds to keep you operational for two to three months in the unlikely event that you lose all your clients.
10. Seek Professional Advice When Needed
This is pretty easy. You’re a lawyer, not an accountant. You specialize in law, not accounting. You aren’t expected to have total management over all your finances. That’s why there are accountants for lawyers.
Your accountant can show you how to maintain a healthy financial system that delivers profits and meets all relevant laws and regulations. This is essential to avoid heavy fines and/or penalties for non-compliance or unclear business practices.
Conclusion And Final Recommendations
The single, absolute essential aspect of your business that you need to manage with an iron fist is your finances. Without proper financial management you’ll never know where and when money comes in and how much dribbles out.
On the other hand, proper financial management that tracks revenue and expenditure and helps plan and provide for the future will keep your business running on an even keel and pave the way for growth and profit.
You don’t need to be a financial whiz to keep your accounts accurate and organized. Law firm account software helps you monitor real-time data so you can make informed decisions on the spot, if necessary. The clear and intuitive manner in which the data is stored will help your accountant analyze your financial status and plan to reduce losses and improve gains so you can continue to build your firm’s good reputation.
Note: If you’re interested in trends within the law industry for 2023, take a look at Lawyer Monthly, it regularly provides helpful advice for you to drive your business forward.
Sage Intacct is a world leader in ERP, AI-powered accounting solutions for law firms. It’s easy to benefit from Sage Intacct’s revolutionary software that enables you to make informed decisions for your law firm, regardless of size. All it takes is one obligation-free call for us to start scaling your operations and your software to suit your firm’s needs.
Sage Intacct gives you access to financial reports immediately so you and your accountant can work together to analyze relevant data and gain insight into your financial performance. You can make informed decisions about challenging financial matters and concentrate on improving your services and growing your reputation as a successful, reliable, and discreet law firm.
Choose LWI for expert guidance in selecting tailored accounting software for your law firm’s financial success, or follow the provided guidelines to streamline revenue and expense tracking independently.