First, let’s start by saying that outsourcing your financials isn’t nearly as expensive or as costly as an accounting mistake. Bookkeeping alone is a complex process. Bookkeeping for law firms increases the complexity ten-fold as it requires familiarity with individual state guidelines and understanding how each law firm operates.
Part of the complexity stems from correct management of IOLTA accounts and client billing. One false move may cost an attorney their license. And not all practices areas are treated equally when it comes to accounting. Then there is the software, and let us be honest, QuickBooks is confusing. Getting QuickBooks to integrate with other business software can be difficult and requires another level of expertise. Throw in managing trust accounts and we have successfully described a real-life accounting jigsaw puzzle. Thankfully, MVO knows how to make all the pieces fit together.
It’s important to have a bookkeeper familiar with how to handle financials for different practice areas. Lucky for our clients, our team has years of bookkeeping experience specifically for law firms to ensure the process is seamless.
Below we break down some unique accounting requirements that vary by the following practice areas: Family Law, Estate Planning & Criminal Law, and Injury.
Law Firm Bookkeeping by Practice Area:
For most firms, family law payments consist of an initial retainer and billing done on an hourly basis. When a client retains a firm, they provide a fee deposit that goes into trust (IOLTA). Those funds do not belong to the firm as they have not been earned in the traditional sense.
Every billing cycle, the client receives their bill and that bill should reflect all hours worked, what work was actually performed, any firm expenses passed on to the client (like filing fees), and the total balance due. The balance due is then deducted from the client’s trust. Those funds are moved from the firm’s IOLTA account to their operating account and marked as a payment received from the client.
If the firm is accruing billable time and notices that the amount in the client’s trust will not cover time worked, then a client will need to replenish that account. Once the case is closed and all work is complete, a final bill goes out and any funds remaining in trust are refunded to the client.
On behalf of our Family Law clients, our team manages all client retainers and funds moving in and out of IOLTA accounts.
Estate Planning and Criminal Law
These practice areas are lumped together because they are typically the most straightforward when it comes to managing finances. Usually, clients are billed at a flat fee with no money going into IOLTA. Many firms set up payment plans with clients that are managed by the A/R department. It’s common to see Estate Planning broken out into two payments – half upon retaining the firm and the other half at the end of the work. In contrast, criminal law cases may stretch out over years with payments due monthly.
Each firm operates a little differently when it comes to out-of-pocket costs. Some firms require clients to make pre-payments, some incur cost and then bill it to the client, while other firms build the expected costs into their flat fee. Regardless of what method your firm uses, MVO Resources manages all client-billing and accounts receivable as the bookkeeper for your law firm.
Injury cases are complex, especially when it involves mass tort. When your firm receives a settlement on behalf of a client and/or multiple clients, the funds go into the firm’s trust account. This money is technically the clients. On behalf of the client, the case managers work with lien holders and creditors in an effort to reduce the total amount owed. Once reductions are negotiated, the closing/settlement statements are prepared.
The statement will consist of the amount received from settlement, attorney fees (predetermined percentage of the settlement), attorney out-of-pocket costs, amount due to lien holders and creditors, and then the amount to be distributed to the client. The statement will be reviewed by the client, signed and sent to the accounting team for payouts.
At MVO, we have many years of experience handling settlements and accounting for attorneys specializing in Injury cases.
Why Does it Matter?
Hiring a consultant that specializes in law firm bookkeeping does matter!
At MVO, we pride ourselves on understanding each practice area, in each state, and intricacies that result for accounting purposes. Our clients agree that hiring an experienced, outside bookkeeper familiar with the industry, resulted in a seamless transition for both the owners and their employees. Clients also report a significant reduction in accounts receivables (over 70%), and an increase of their annual net profits by outsourcing their bookkeeping to a consultant with experience working with law firms.
Are you looking to increase your profits and reduce your accounts receivables? Consider reaching out to owner, Danielle Moore at MVO Resources today.