| Law Office Management |
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LOMA : Articles
A Rose By Any Other Name: Characteristics of
an Efficient Practice
By Patricia Yevics
Director, Law Office Management
Maryland State Bar Association, Inc.
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In reading about the failure and
restructuring of so many dot.com and other technology-type businesses, I
wondered why so many bright, hard-working and talented people could have
made such business blunders. As I continued to read more and more about
the reasons for some of the failures, there seemed to be a reoccurring
theme. At the risk of oversimplification, it appeared that the failures
resulted, not because the ideas weren't good or the entrepreneurs not
bright but rather because so many accepted business management principles
were not being practiced.
Regardless of what type of business you
have, good management is good management and the same principles apply. It
isn't enough to build a better mousetrap or be a great lawyer to build a
successful and efficient business or practice. Although being a good
lawyer is the foundation of your firm's success, it takes much more. Over
the next few months, this column will discuss characteristics of a
successful business/practice. Due to space constraints, the series of
articles will be broken into five topics. The first will focus on
financial related-issues. The remaining articles will focus on personnel
and supervision issues, client issues, office systems and procedures and
technology.
As you read the series, there are two items
consider: 1) Your firm is not too small (even if it is just you and a
computer ) to consider most of these items and 2) these are procedures and
documents that should be used every day. Everyone in your office should
know the procedures. Remember success is not an accident. It is a planned
event.
Financial-Related Issues
- All firms, no matter how small or how
new, should have a written annual and monthly budget. This budget
should be reviewed regularly. Ideally, you should work with an
accountant familiar with law firms of your size. Your budget should
include all fixed expenses for the coming year on a month to month
basis.
- You should know when all of your
accounts payables are due. This will help with cash flow. You should
have a chart in Excel or Quatro Pro listing all of your fixed
expenses, the amounts due and dates due.
- You should have a projected budget for
non-fixed expenses such as education, publications, marketing/client
development, supplies. If you have been in practice for a few years
you should be able to know what you spent each year on these expenses
to make an estimate for the coming year. You should be able to compare
months and years to determine differences or when there may be a
greater need for cash.
- You should have technology budget for at
least the next year. If you have others in the office, get their input
on what problems they may be currently having and what types of
purchases may be needed with the next year. Put the cost of training
into the budget.
- Do you know how much you will need to
generate in fees in order to pay your expenses and your salary? You
should have a budget for projected income. Your budget for your
expenses lets you know how much you need to just cover expenses but
you will also have add in your own salary.
- Do you know your projected cash flow for
the next six months? You should know what will be coming in and what
needs to be paid.
NOTE: The budgets are documents that you
should have at your fingertips and should be updated continuously. You
be able to know at any given time where you stand financially both on a
short-term and long-term basis.
Billing and Collection
- All clients should have signed written
fee agreements. At a minimum, all new clients should receive a fee
agreement. They should understand that little or no work will begin on
a matter until the fee agreement is signed. There should be a
mechanism for knowing whether or not a fee agreement has been signed
before putting too much time into a matter.
- You should have a written billing and
collection policy. These policies should be given to the client at the
initial interview and explained. (for samples of billing and
collection procedures, please go to the MSBA Website at http://www.msba.org.
Click on Member Benefits, Law Office Management Assistance and then
Articles.)
- There should be written policies for
billing and collection even for contingency work. The policies should
state the procedures for out of pocket expenses, replenishing the
account for expenses, payment from fees for outstanding expenses.
- You should be using a software program
for your time and billing and ideally, you should be entering time as
you work on a client. At a minimum, you should be recording your time
daily. If you spend 8-10 hours at the office or on work related
matters, you should be able to account for all of those hours. If you
lose just one hour a day at $100.00 per hour, you have lost $25,000 in
a year (assuming you take a vacation for two weeks) . These are fees
that are simply lost.
- You should bill all your clients monthly
and immediately at the conclusion of a matter. If you work on client
during a given month, that client should receive a bill.
- Accounts receivable should be monitored
monthly or weekly if necessary. Someone should have the responsibility
of knowing which clients owe money and when payment is expected.
- If you are waiting for payments from
clients have the person in your office who is responsible for the bank
deposit, give you a list of all payments each day. The list should be
attached to a sheet that lists from whom you may be expecting payment
- You should get a retainer from almost
all clients. All retainer accounts should be monitored monthly to make
certain that account is not being depleted. Let the client know if you
plan to ask for an additional retainer if the account gets too low.
- Consider using the retainer to apply to
last invoice. If you plan to do that, make certain that you have it in
your fee agreement and that you return any money that is not used as
soon as the matter is completed.
Trust Accounts
- Make certain that anyone in your office
(including you) has access to the Rules of Professional Conduct and
that everyone knows the rules for proper handling of trust accounts.
If you do not have a copy of the rules, they are available on line
through a link on the MSBA's Website. Go to Legal Links on the
website. Click on Court and Government Sites and then Maryland Rules
of Professional Conduct. The rules are made available through Lexis/Nexis.
- Without fail, make certain that you
reconcile your office and trust accounts monthly. Most of the software
programs used by solo and small firm practitioners such as Quicken or
Quickbooks make this a fairly easy process. If this task is assigned
to someone else in the office, make certain that you review it or have
your accountant review it regularly. You are responsible for all
errors.
- Make certain that you have separate
client ledgers for your trust account. This does not mean that you
need separate accounts, just separate records. Make certain that they
reconcile each month.
- Deposit checks every day without fail.
- If you have not done so, consider having
operating and trust account checks in different colors.
- When paying expenses from your trust
account either to an outside vendor or for work, you have performed,
send the client a statement indicating what is being paid and the
account balance.
- Consider keeping trust account and
operating account checks in a locked cabinet with only a limited
number of people having access to the key.
- Develop a relationship with the bank
manager at the local branch where you do your banking. This is
especially helpful for solo practitioners. Most bank managers in local
branches are excellent sources of information and referral sources.
- Although most solo and small firm
practitioners do not need monthly accounting services from a CPA, you
should have relationship with an accountant or accounting firm. Your
accountant should be able to assist you with budgeting, cash flow and
supervision of your trust accounts.
- Some resources:
**" How to Improve Your Cash
Flow" ABA's Law Practice Management, January/February 2001. Visit the
archives at http://www.abanet.org/lpm.
You can then view articles from past issues.
** The American Bar Association has some
excellent publications on budgeting, cash flow and billing. Those
publications can be found at http://www.abanet.org/lpm/catalog/topiclist.html.
If you are not an ABA member, you may also purchase some of these
publications for a discount from the MSBA via the website at www.msba.org
and click on Member Benefits
and Vendor Discounts. If
you wish to review any of these publications, they are available at Bar
Headquarters.
** The Federal Consumer Information Center
in Colorado has excellent resources to assist with budgeting including
worksheets. It is a consumer's almanac and can be printed (it is 32 pages)
from the website at http://www.pueblo.gsa.gov/cic_text/money/almanac/calmanac.htm
** Quicken.com has a site that gives
information on starting, running and growing a business. It also has a
site to write a mini-business plan.
