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Family law clients are in deep conflict. They’re facing some of the most trying situations in their lives, whether it’s a matter of a separation agreement, divorce, alimony or child support dispute, or child custody battle. Their nerves are likely frayed, and they need support and guidance.
So, prospective family law clients probably need a little more hand-holding and care than many other types of clients. Because their issues are so personal, they likely need an empathetic ear. They’d also benefit from a client intake process that eliminates the fear of working on personal matters with a stranger and makes it easy for them to start moving forward.
One way that family law firms can make client intake easier for prospects is to offer a questionnaire that helps prepare clients for the information they need to share, so they can organize their thoughts and documents in advance.
Here’s how an online intake form can help you make the most of the intake process, so you start your attorney-client relationship off on the right foot:
Clients create value for any business, including law firms. Since the practice of law is a client-based (and reputation-based) business, law firms need to provide an outstanding client experience from the very beginning.
Keep in mind that your family law clients are likely a source of repeat business. (Let’s hope that their disputes are one-and-done and that they instead help you grow your firm’s revenue by attracting new clients with positive online testimonials and referrals.)
Unfortunately, many lawyers are too busy practicing law to give a lot of thought to the client experience. That’s a mistake because there’s little otherwise to differentiate you from other law firms. To ensure your clients walk away with a great impression, you should communicate regularly with them and keep them updated on their case, use technology to create a client portal for ease of billing and calendaring, and of course, develop a thoughtful client intake process.
The practice of family law is different from other areas of law because it’s emotionally charged and often adversarial. It’s also incredibly personal and potentially embarrassing or terrifying— especially for victims of emotional and physical abuse.
Family law clients often feel a little shellshocked when they first walk in for an initial consultation. Not only are they going through something traumatic, but then they must share the most personal, intimate details of their ordeal with a complete stranger. That’s why it’s critical for lawyers to build a sense of trust with new clients at the very beginning— and to do so very quickly.
Without that trust, clients may not share important information that is potentially damaging to their case. Worse yet, they might run for the door and into a different lawyer’s office.
The best way for a family law lawyer to create a positive client intake experience is to prepare in advance. That way, you’ll be ready to handle any emotional discussions more productively. This might mean implementing technology for a smooth virtual intake process or giving your client a form to fill out beforehand.
A client intake form, when built correctly, can give your clients direction. It can also get them used to talking about their issues so that they don’t get so flummoxed that they clam up and refuse to talk or unload like you’re their therapist.
Streamlining the intake process also cuts down on the risk of making a bad first impression. When asking questions about personal matters like domestic disputes, attorneys at law may appear to be insensitive. A questionnaire avoids that discomfort because you’ll be informed about the client’s situation in advance and be ready to start proposing solutions.
And if you share the form before your meeting, rather than requiring clients to fill it out when they get to your office, you’ll be more prepared for your first meeting.
You’ll need more than a basic contact form to get the information you need to improve the intake process. A comprehensive family law intake online form asks targeted questions. While it may not cover every single angle you’ll need to know about your client, it will give you a baseline of information to guide your conversation during the initial consultation.
The key is to start with general information and then move to more specific details. Here are some of the things that your family law intake form should cover:
It’s also a good idea to ask a few narrative questions, such as “describe your relationship with your kids,” “explain your biggest concerns about this situation,” and so forth. Questions like these give new clients a chance to tell their stories before talking to you. You can use this background to frame your discussion.
If you don’t already have a client intake form, download our template (see the pop-up to your left?) to start building your own. Using an online client intake form can strengthen your client relationships, giving you the foundation for a better client experience from the very beginning.
It’s no secret that the last two years have been filled with unprecedented challenges. But, navigating these challenges has armed attorneys and legal operations professionals with valuable lessons about providing legal services in the midst of difficult times. Moving into 2022, the legal industry as a whole is taking those lessons and turning them into resources to support a successful year to come.
Firms want tools that help them handle routine tasks in a more efficient manner so they can save time and drive revenue. As such, two words will define the legal industry in 2022: streamlined and convenient.
Keep reading to explore some of the trends that will drive these concepts and shape the industry in 2022.
As consumers in the larger economy, legal clients have come to expect convenience from every business they patronize, and that includes law firms. They want a seamless client experience that meets them where they are without requiring what they perceive as unnecessary steps. With a goal of maintaining positive client relationships, firms will increasingly rely on technology to meet that objective.
Tools like virtual meeting platforms, client portals, and electronic payment capabilities will maintain their prevalence among law firms in 2022. Even as some firms have returned to in-person meetings and proceedings, many clients still expect the convenience of conducting business from the comfort and security of their homes. To remain competitive within the industry, firms of all sizes will have to meet this expectation.
Discovery is often one of the most convoluted tasks that a law firm handles, requiring time-consuming contributions and coordination between all parties to a matter. It can be a complicated process that drives industry efforts to make the process easier to handle. E-discovery uses artificial intelligence (AI) and automation technology to collect and produce data in response to formal requests within a legal proceeding. Not to mention, it is a $2B industry that helps law firms pull relevant information from volumes of various types of records. A cost-effective alternative to traditional discovery methods, e-discovery is expected to continue growing and helping firms increase revenues in the year ahead.
Outsourcing has become a widely accepted practice for law firms in recent years as they look for ways to complete administrative, and even legal, tasks in an efficient and cost-effective manner. Outsourcing involves the identification of tasks and practice areas that can be best handled by outside service providers. According to experts, the outsourcing of legal processes will continue to be a growing industry in the year ahead, providing law firms with services related to accounting, legal billing, and various tech functions.
By outsourcing some necessary non-legal duties, firms can spend more time and resources on their most profitable tasks. But some firms are even choosing to outsource some of their more intricate legal processes. The use of contract paralegals will continue to expand during 2022. Firms benefit from bringing in these professionals to work on specific matters without the extra overhead costs that come along with hiring a new employee. Particularly within small and mid-sized firms, paralegal outsourcing can help drive revenue in an efficient manner.
“New law” is taking outsourcing to another level with many big firms hiring contract attorneys to handle matters on an as-needed basis. This innovative way of providing legal services is largely in response to consumer complaints about high costs and hourly fees. Firm leaders have discovered that the use of contract lawyers can help them control their costs. They can then pass some of those savings onto their clients, while also maximizing profits.
In 2022, “new law” offers law firms and individual attorneys the flexibility they need as the uncertainties of the pandemic persist. They can pivot quickly to remain competitive while continuously meeting client needs and driving revenue.
Automation is a major driver for streamlining the practice of law, and any reduction in repetitive law firm tasks equates to more time for work that drives revenue. Automation technologies are evolving the basic administrative functions of a law firm through the use of AI innovations. They take on various forms, and each can significantly ease the day-to-day functions of a law firm. In 2022, firms will look for the repetitive tasks that create bottlenecks within their workflows and seek out automation options that can better handle them. Tasks like calendaring, client onboarding, conflict checks, and even the creation of some court documents can be effectively handled through automation.
Remote work was a quick necessity at the start of the pandemic, but moving into 2022, firms will look for ways to evolve these arrangements, making them more efficient, seamless, and responsive. The “make it work” perspective will be replaced with one that embraces serious thought and strategy. Firms will revisit their policies to identify areas for improvement.
As better technology adds to a more effective remote working environment, communication will play a large role. Firms will seek improved communication systems to remove obstacles that thwart both collaborations between firm members and effective communications between the firm and clients. The use of cloud-based softphones and texting platforms will expand in 2022, along with client portals. From lead management to collections, firms will seek ways to raise the communication bar.
The wave of legal technology will not come to an end in 2022. Many courts and jurisdictions recognized the efficiency of processes like remote hearings and no-appearance proceedings when they became a necessity, and even as the world reopens, they will continue utilizing these tools. The access to justice will expand and legal technologies will keep evolving to meet these needs. As such, law firms will also continue embracing new technologies as the year progresses.
For law firms to thrive in 2022, they will need to pay close attention to analytics and reporting. Information related to revenue, profits, expenses, and practice area performance will be key to making decisions about the direction and growth of firms. Over the past year, attorneys and law firm administrators have put a lot of thought and effort into transforming their practices and working to make them pandemic-proof. 2022 will be the year of determining whether these new processes have actually translated into real profits. To do this, firms will need technologies that make the capturing and reporting of data quick and easy. With a data-focused perspective, law firms will be able to make informed decisions in the new year.
Part-time work generally does not come to mind when thinking about jobs within the legal industry, but experts suggest that this will be a trend in the coming year. Many employees enjoyed the work-life balance that they experienced during shutdowns. They will seek ways to continue that flexibility in 2022 and part-time opportunities offer a viable solution. Firm members can earn enough money to meet necessary expenses and even pay down some student loan debt while maintaining a level of freedom within their personal lives.
Experts suggest that the increased demand for legal services that started during the pandemic will continue into 2022, especially for the following practice areas:
Firms can meet these increases in a number of ways. They should first recognize the potential that lies within these practice areas and the types of prospective clients that they may bring through the door. Firm leaders can identify which of these practice areas best align with the strengths of their firms and how to best leverage existing resources to serve these clients. With an understanding of increased demand within the legal industry, law firms can take advantage of this trend in the coming year.
You know that your law firm is a business. But only recently have firms started focusing on how to improve their business. (After all, the leading legal industry organization dedicated to legal ops, the Corporate Legal Operations Consortium (CLOC), has only been around since 2016.) To date, few firms today have hired dedicated legal operations professionals, much less created a formal legal operations function.
An easy first step on the journey toward more effective legal operations is hiring an experienced legal operations manager. A driven and dedicated legal operations manager can make all the difference for a law firm that is looking to optimize business processes to increase revenue and productivity.
Legal operations is the business of running a law firm.
While lawyers may spend the bulk of their time engaged in the practice of law or strategic planning for matters, the legal operations department works behind the scenes to make sure all of that is done as efficiently and profitably as possible. Strong legal operations departments work to streamline processes within the law firm to maximize operational efficiencies, helping lawyers work smarter and faster so they can earn more revenue.
Day to day, this might look like monitoring lawyer productivity, identifying new legal analytical tools, budgeting for the firm, and managing third-party providers. Over time, it means implementing new processes and practices that will guide the law firm along the path to becoming a thriving business.
A legal operations team is no longer a luxury reserved for large firms. It’s now a valuable resource for small and midsized law firms that live and die by the bottom line. Legal operations should be a priority for law firms of all sizes, especially those looking to grow.
You can’t have an effective legal ops department without a fearless leader. That’s why near the head of the table in the legal operations department sits the legal operations manager.
A legal operations manager oversees various legal ops team members’ day-to-day activities and ongoing projects. Depending on the size of the law firm, the legal ops manager might report to a director of legal operations and be responsible for a larger team or just one or two legal operations specialists or analysts.
Either way, the legal operations manager must take stock of the current state of affairs of the law firm and come up with ways to make it better.
Legal operations managers take a deep dive into the firm’s budget. They break down where money is going within the firm and where money is coming from. They also provide stable financial planning for the future.
Legal ops managers use past yearly spending to build forecasting models and proactively identify new, creative ways to optimize financial resources within the firm. Many legal ops managers will also analyze processes related to e-billing to streamline outdated, tedious, and repetitive workflows. They study peer law firms as part of benchmarking exercises, always looking for innovative ways to price work and trim expenses.
But legal operations managers do much more than just budgeting! They also look at individual lawyer productivity and identify ways to make everyone at the firm work smarter. Sure, legal ops managers can’t step into the shoes of the managing partner, but they’ll have valuable input on staffing questions that firm leaders will want to listen to. Among other metrics, they analyze data related to billable hours, assigned cases, and revenue generated as a result of each lawyer’s work.
From that data, a strong legal ops manager comes up with ways to assign certain cases to lawyers who are more or less productive, depending on the needs of the firm and the ideal legal spend per case. They might also plan training for lawyers and staff and develop policies designed to increase firm productivity. Some legal ops managers even go as far as making recommendations on hiring and firing decisions.
Legal operations managers oversee third-party vendors, such as alternative legal service providers, freelance lawyers, and other professionals, like experts and consultants, who provide services to the law firm. In the past, firms might have relied on word-of-mouth recommendations or professional connections to decide where to outsource work rather than choosing the best, most efficient vendor based on objective criteria.
Proactive legal ops managers challenge traditional sourcing models. They also look for opportunities to rethink pricing arrangements and work to negotiate favorable rates from third-party vendors to maximize the value for every dollar spent. They scour the job boards and vet candidates to ensure that their firm avoids wasting money in the recruitment and onboarding process.
At the heart of it all, legal ops managers must collect, analyze, and translate the firm’s data. That means breaking data down for partners in the firm who might not be so business inclined.
Legal ops managers are responsible for data that extends across many different areas of the law firm. Their most common focus is the budget, scrutinizing data from their e-billing system to understand their revenue by practice area or case. They also collect data about lawyer productivity and translate that into smart hiring practices and case-assignment strategies that save money.
To collect this data, a legal ops manager will spend time researching and trying out innovative technology to choose the best tech for the firm. They’ll need to understand the latest trends and the opportunities to expand and incorporate new platforms into their work and the work of others in the office. This technology is important to optimizing processes and saving time (which means saving money) throughout the firm.
Most legal operations managers have a bachelor’s degree and at least some experience in legal project management or operations, whether in another law firm or in-house. Optimal candidates often have a blend of corporate legal department and law firm experience, which will ensure they have a deep knowledge of the inner workings of law firms along with the know-how and skills to position the firm as a leading outside counsel capable of addressing the needs of even the most demanding general counsel.
A job description for a legal operations manager will focus on competencies such as analytical skills, problem-solving skills, and communication skills that enable ops managers to speak to a variety of stakeholders at all levels of the firm. They should also have experience managing projects, developing policies, and collaborating with legal teams to deliver results.
Successful legal ops managers often have strong backgrounds in vendor management and change management initiatives. Extensive knowledge of technological solutions, including contract management, knowledge management, and matter management, will help the legal ops manager harness the inherent value in the firm’s data and inform their recommendations for procurement and service delivery strategies.
Hands down the best way for a legal operations manager to increase their firm’s efficiency is to leverage technology.
Legal technology has dramatically improved over the years. Instead of toiling away in the law library, lawyers can find relevant cases and statutes with just a few keystrokes. There’s no need to struggle to estimate the likelihood of winning a case because artificial intelligence and machine learning tools can do that for you. And - let’s not forget technology that helps with client recruitment, management, and correspondence.
Not only does a legal operations manager need to understand how to use these types of technology to make lawyers' work more efficient, but they must also understand how to leverage technology to make the entire law firm more efficient as a business.
Luckily, there are platforms that can help legal operations managers monitor key performance indicators (KPIs) like legal spending as a percentage of the firm’s revenue, the cost of a case per matter, and the cost per lawyer. This technology can also crunch the numbers so that legal ops managers can see whether the firm is optimally productive. Platforms can track the percentage of cases resolved vs. litigated, staffing and paralegal spend by lawyer, legal hours vs. administrative hours, and deadline compliance. Legal ops tools can even track the amount of time that a case takes at each pivotal point and the overall satisfaction of each client.
By leveraging innovative technology and continually re-evaluating the firm’s current processes, legal ops managers can get a clearer picture of the firm’s financial status and use the data to come up with new ways to make things run smoother, make the lawyer’s jobs easier, and make the law firm more profitable.
The future of legal operations management is constantly evolving.
Law firms’ financial, strategic, and internal decision-making is increasingly based on quantitative data instead of guesswork. That data is valuable for legal ops managers who need to evaluate productivity and streamline efficiency within the law firm. Instead of merely reporting on the data to firm leaders, future legal ops managers will play a vital role in redefining how law firms can work smarter and build a better business model.
This is a tremendous opportunity for legal ops professionals to engage in the business management of a law firm and to take part in the legal technology revolution. It is also a chance for law firms to differentiate themselves from competitors by creating value and to leap headfirst into the modern era.
Of course, there will be challenges: changing the status quo in a law firm can be difficult at times. But once law firm leaders see the value created by a great legal operations team, headed by a strong legal ops manager, it won’t take long for them to get on board.
By spending time now to build a strong legal operations team headed by an experienced, tech-savvy legal operations manager, you can modernize your firm and situate it to capitalize on future trends in legal operations.
A recent study from Bloomberg suggests that a third of law firms don’t have a dedicated legal operations function. But is that true?
To paraphrase Shakespeare, we think it’s a case of a rose by any other name smelling as sweet. Even if firms don’t have a formal legal operations team or use specific job titles like “director of transformation” or “manager of service delivery,” they’re still engaging in at least some operations-related activities. For example, they’re probably:
If you’re dabbling in these activities or considering whether your firm needs a dedicated legal ops professional, you may be wondering how deep to go down the rabbit hole in forming your team. Let’s take a closer look at what a legal ops team does and how you should go about building yours.
In a nutshell, legal operations is about running the business side of a law firm. It includes managing law firm productivity, avoiding risks, monitoring compliance, handling department budgeting, implementing technology, studying data from legal analytics tools, and sourcing and managing third-party providers, among other things.
Legal operations’ mandate is to ensure that the firm provides legal services efficiently and in a profitable way that stimulates the firm’s growth. In short, legal ops is tasked with optimizing a law firm’s performance.
According to the Corporate Legal Operations Consortium (CLOC), there are 12 main functions of a legal operations team:
CLOC explains that addressing these 12 functional areas leads to operational excellence. According to CLOC, operational excellence is “a philosophy that embraces problem-solving and leadership as the key[s] to continuous improvement and a mindset that embraces certain principles and tools to create sustainable improvement within an organization.” It involves the execution of a business strategy to reduce risk, lower operating costs while increasing productivity, and raise revenue through tactical and strategic objectives.
Given the breadth of these functional areas, it will be difficult for a single legal ops professional to oversee and optimize all of these areas. That’s where a legal ops team comes in.
As law firms feel greater pressure to do more with less, they need to find new ways to trim their bottom line and optimize their productivity. Midsize firms are already lean, so they can’t meet their goals by simply reducing headcount and raising their billable hours targets.
Legal operations helps midsize law firms find new ways to deliver better service to their clients. Not only can it help lawyers attract more clients by developing alternative fee arrangements that are beneficial to both sides of a transaction, but it can also ensure that law firms are maximizing their profitability by staffing properly. That means assigning the right work to the right level resource, whether that’s a paralegal, junior associate, senior associate, or partner.
Adding technology to the mix can simplify the practice of law and improve the quality of life for lawyers in midsize firms. And, most importantly, the data that tech tools, such as e-billing, matter management, contract management, document management, and data management tools, collect for firms can help them ensure compliance with client billing guidelines as well as understand opportunities for the firm to improve. Analytics from these tools help increase the firm’s transparency with clients and allow lawyers to better predict case budgets and outcomes.
You don’t need to be a lawyer to work in legal operations—but a legal background, whether as a lawyer with a law firm or in an in-house corporate legal team, won’t hurt. Legal operations professionals must be able to understand the law firm’s business model and be able to add value in conversations with law firm leaders.
The optimal candidate is likely someone with business acumen and possibly a financial and data analytics background. Someone with a law degree and MBA may offer the right blend of expertise for the role. But don’t be afraid to tap someone inside your firm if they’re already contributing to work on your firm’s processes, vendor management, technology, or data analysis.
The director of legal operations, sometimes called the head of legal operations, runs the legal ops team and usually reports directly to the firm’s managing partner.
The director is responsible for managing the entire legal ops team and for making higher-level decisions. These decisions might include the final opinion on resource allocation, vendor procurement, personnel matters, or leadership initiatives. The director of legal operations might also recommend whether to implement new technologies, advise on pricing structures, or suggest ideas to streamline processes that are wasting money. Usually, these recommendations are based on a synthesis of data and information provided by the lower-ranking members of the team.
It is important to hire someone with a demonstrated ability to identify and implement changes in legal technology, people, and processes. The director should also have well-developed change management and leadership skills, especially since they will be leading and acting as a role model for the rest of the team.
The Legal Operations Manager is the second in command of the legal operations team. They oversee all legal operations projects and manage team members’ day-to-day activities.
The manager should have strong leadership and communication skills since they will be guiding the team directly and interacting with a variety of stakeholders, including law firm leaders and possibly even a client’s general counsel or other department leaders. They should also have a strong sense of judgment, knowing when to share information with the director and with firm leadership. You should look for someone with years of experience managing people, driving process improvement, and collaborating across multiple departments.
A strong legal operations manager will understand the ins and outs of the law firm, including its hiring needs and the intimate financial details of the firm’s daily operations. They must be highly organized and detail-oriented with extensive experience in project management and streamlining processes to maximize operational efficiencies.
A legal operations specialist generally focuses on identifying areas of need and optimizing workflows. It is a highly collaborative role that requires strong communication skills and the ability to understand how other departments function. Examples of their work might be following up with legal operations analysts or researching new technology.
A legal operations specialist works directly under the legal operations manager. This position is usually generalized and a catch-all for the remainder of the work that falls under the purview of the legal operations manager.
It is important to hire someone who can handle a variety of projects and thrives in a fast-paced work environment with minimal guidance. A self-starter and easily motivated legal operations specialist is an excellent addition to round out your team.
A legal operations analyst is a more specialized role than that of a legal operations specialist. Unlike a specialist who (somewhat paradoxically) performs more generalized tasks, an analyst collects and synthesizes data specific to the legal team’s metrics.
The analyst does a deep dive into the functioning, caseload, work habits, and key performance indicators (KPIs) for each lawyer. This helps the legal operations manager decide where to allocate resources and how to better manage the legal department to increase profitability. Their work might affect the number of cases that each lawyer takes on, influence decisions about whether to hire additional local outside counsel or improve attorney management practices to boost productivity.
You should look for a detail-oriented individual with experience monitoring and reporting on data who can also collaborate on a larger team and between multiple departments. An analytical employee with an understanding of both the minutiae and the bigger picture will be an asset to any legal operations team.
Assembling a legal operations team might feel a bit daunting, but it doesn’t have to be. Instead, look at it as an exciting opportunity to grow your firm.
Start by identifying any gaps in your current legal operations team (or draft a plan for implementing one). Then create a plan for how you’ll start tackling the core functions we outlined above, whether it’s by recruiting new hires for the roles described here or sharing the work between existing staff. (Keep in mind, though, that legal operations responsibilities are often extensive enough to require a full-time role!)
The sooner you build out and formalize your legal operations team, the sooner you’ll start to see results in terms of more efficient processes, better client service, and more robust profits. Legal operations can also eliminate some of the headaches of practicing law, as your firm’s lawyers benefit from more organized knowledge management and accelerate their work with data-driven tech tools.
Remember that the purpose of a legal operations department varies from firm to firm based on each firm’s needs and current operating practices. Look at what your law firm needs today and strive to craft a legal operations team that can not only handle those needs but also bring your law firm into a future that you may not have yet imagined.
Every law firm should start 2022 with accurately balanced accounting that is ready for all that the new year will bring. However, doing so requires the complete closure of books from the 2021 fiscal year.
While this annual process is typically easier for firms that have consistently updated their books monthly, those that wait until year’s end can still complete this important task successfully. This year-end closing process comes together through reconciling bank accounts, adjusting entries, and preparing financial statements for analysis.
The following are some annual bookkeeping processes to help your law firm set the foundation for financial success in the coming year. Like what you’re reading? We’ve also prepared a handy checklist for you to follow to ensure your books are up to date as 2022 approaches.
Settling invoices and outstanding client accounts will make it much easier for your firm in the coming year by bringing all income up to date before the year’s end. If any invoices for completed work are yet to be issued, you should create and send them immediately.
Outstanding invoice payments also require prompt follow-up. An abundance of unpaid invoices can result in decreased revenue and law firm cash flow, impacting a firm’s ability to meet its financial obligations at the start of 2022. Firm administrators should run an accounts receivable report for an up-to-date listing of all unpaid bills.
The firm can then take the following steps to settle the accounts that firms deem collectible:
For any seriously past due accounts that cannot be settled, firm leaders must decide whether or not they are ultimately collectible. The likelihood of collection decreases significantly over time, so for accounts that will likely never be paid, it may be appropriate to write them off by December 31st.
Expense tracking must be a part of the year-end closing process. It is equally as important to account for money going out of the firm as it is to track revenue coming into the firm. Without this information, attorneys and firm administrators lack a true picture of the practice’s financial well-being. Don’t go into 2022 believing that your firm is more financially viable than it actually is, which could potentially lead to problems like inadequate cash flow and the inability to cover firm overhead.
For firms that do not track expenses monthly, it is useful to conduct an audit of all 2021 expense records to ensure that every cost is included in the year-end closeout. This not only helps with financial analysis and budgeting for the new year but also benefits the firm’s accountant as they work to identify expenses that may be tax-deductible.
If possible, aim to settle all outstanding debts before closing out the yearly books. This includes all vendors that provide services or equipment to your firm, as well any contractors that the firm has outsourced duties to throughout the year. By settling these debts, firms benefit from a fresh start for the new financial year without residual expenses.
After all revenue and expenses are recorded, law firms should perform bank reconciliations to ensure that all financial records line up with bank statements. Any discrepancies need to be reviewed and investigated.
The best practice for this task is to reconcile monthly as soon as bank statements arrive. Otherwise, firms must contend with 12 months of bank statements in a short period of time, making it more challenging to identify errors.
Most jurisdictions require law firms to reconcile client trust accounts on a monthly, or at least quarterly, basis. However, this does not negate the duty of completing year-end trust account and retainer reviews. An annual review is useful for double-checking reconciliations done throughout the year to ensure that no mistakes or miscalculations were missed. The ledger sheet for each client’s trust account should line up completely with the corresponding bank statements.
In addition to trust accounting, firms should also review client retainer balances to determine which retainers need to be replenished. Firms should also ensure that all earned funds have been appropriately transferred into operating accounts from retainers held in trust.
Another task for closing the 2021 books is ensuring accurate and updated records of fixed assets. These are long-term assets with a usage life of more than a fiscal year that law firms use in the delivery of services.
Some examples of fixed assets that your firm may have acquired in 2021 include:
If your law firm purchased any type of fixed asset over the past year, its financial details should be recorded, and its yearly depreciable value should be reviewed by an accountant or accounting software. Calculated depreciations can potentially be written off as tax deductions.
Law firms withhold payroll taxes from employees’ earnings to pay taxes required by the state and federal governments. The amounts deducted and sent to the government vary depending on the employee’s salary and wages. As a business, it is your law firm’s responsibility to manage these taxes and ensure that accurate amounts are sent. A year-end closeout should include a review of payroll taxes to make sure that these tax liabilities accurately match your firm’s quarterly payroll returns.
Year-end is also an opportune time for processing 2021 employee W-2s and contractor 1099s, so it’s important that firms ensure accurate records for all members. Firm administrators should verify employee and contractor information and make any necessary changes.
When all revenue, expenses, and data are finalized and entered, firms should run the following financial statements:
The annual closeout also presents a good opportunity to review some firm practices related to legal billing and firm accounting. Firms can run reports related to time tracking and billing to ensure that all firm members have been recording tasks in a timely and comprehensive manner. This data can also reveal any delays in the process of converting tracked time into client invoices.
When all year-end financials have been analyzed and finalized, law firms can securely close their books. This is more than a theoretical step, it is an actual process.Â
For instance, some financial experts advise setting a lock date to prevent any additional changes or edits to the closed books. Firm leaders may assign a password for admin and accountants’ access to ensure and maintain data integrity.
Once the books have been closed, pat yourself on the back (you’ve earned it) and get ready for 2022!
It’s already mid-December, and the end of the fiscal year will be here before we know it.
Evaluating end-of-year compensation for your attorneys may be the last thing (or, we’ll say it, most dreaded thing) on your to-do list as you work through closing the books for 2021.
There is some good news - you don’t have to go it alone. We were lucky enough to be joined on a webinar by Amanda Koplos, Executive Director, and Stephanie Donaldson, Controller, at Shuffield, Lowman & Wilson, P.A., a 40+ attorney, full-service law firm practicing in the areas of corporate law, estate planning, real estate, and litigation based out of Orlando, Florida.
Amanda and Stephanie have a wealth of experience in law firm operations and leadership, having worked in five firms over the course of their careers. They were gracious enough to share their own theories and best practices surrounding end-of-year compensation for attorneys. Here is what they had to say.
Amanda: In my experience, law firms typically divide compensation for timekeepers into multiple categories. Some are based on production; others are based on intangibles that are harder to measure that take into account the overall profitability of the firm or contributions that timekeepers made such as time spent on business development, mentoring other attorneys, or working on the business in a management capacity.
Stephanie: I have seen the same thing. I basically refer to it as objective compensation and discretionary compensation. Objective compensation is exactly what you think it means: there are a series of goals and if an attorney hits those goals, they receive that objective compensation or a combination of salary and bonuses. Discretionary compensation takes into account all of the things previously mentioned but it can also have components such as “overachieving” on objective goals. For example, if billable hours are a function of your objective bonus, and an attorney were to hit those and go over, some firms might add that into discretionary compensation.
Amanda: Lots and lots of spreadsheets!
Stephanie: While that is true, I recommend a few different methods for gathering information. I rely on our accounting system to produce reports. However, in specialized circumstances, I am exporting data from our practice management software and manipulating it in Excel. These reports vary throughout the year and the only way I am able to keep track of them is by running reports on an ongoing basis. For example, I may give each timekeeper one report every month so they can see how they are progressing, while also running a report at the end of each quarter, and finally, at the end of the year.
Amanda: Not to mention, these reports may vary depending on who you are giving the report to. An individual report is going to look significantly different than the one given to firm management or practice group leaders. Those reports are different from the individual attorney reports because leadership needs to see consolidated timekeeping information. My advice here is that you really need to put a procedure in place at the beginning of the year, and prioritize updating and reporting monthly. We know what a time crunch the end of a firm’s fiscal year is and you don’t want to spend hours in December creating standard reports.
Amanda: At the various firms I have worked at your “need” for information differs based on your position. Here’s an example: one firm might track collections based on who worked on the matter or by working timekeeper, meaning collections will become a driving factor for individual attorney compensation. Each attorney is going to want a basic report every month that shows the total collections on the matters they have worked on. Since it is just the collections attributable to them, they don’t need to know (nor do they probably care) what all of the other timekeepers collected on the same matter. So, you want a report that shows you “collections by working timekeeper” and you want to be able to filter it for one attorney with the ability to set date ranges such as a month, quarter, or year. You can pull those reports directly out of a good time and billing system. However, that shows only one side. You also need the ability to see how that ties to compensation for individual timekeepers by taking the raw data on collections and combining it into a report that shows the progress toward a bonus goal.
Stephanie: You need to make the report simple, yet functional. I’m a numbers person so I always want to dump a ton of data into one report. But, if the attorney can’t understand it, it’s a waste of time.
Amanda: I actually had a conversation with an attorney one time. She said, “yeah I get those reports every month but I never look at them or understand them.” I was befuddled by that because that report would help her plan how to make more money. So, I simplified the report for her, she finally “got it” and it was much more successful for everyone involved.
And that’s just reports for individual timekeepers! Then, we might have more in-depth reports for practice area chairs and for the managing partner that help leadership look at everything going on from a full-firm view. Sure, you need the individual numbers, and firm administrators need access to them, but you need to be constantly benchmarking where you are now and how you’re going to fare at the end of the year. A good controller gives you reports that are both historical and include predictions.
Stephanie: Since we’re talking about compensation in firms where there is a lot of variable compensation, (in other words: more discretionary than objective) I have to predict how much compensation we will be paying out on a monthly, quarterly, or annual basis, in addition to predicting how much cash we’ll need to pay that compensation and how the budget (and thus bottom line) is impacted by those predictions.
Amanda: It’s a lot of reports and it’s important to have an organization system. We’re even developing better systems for that. We are investing in pushing information to people and building reports that are specific to users that they can access easily, ideally within their time and billing system.
Stephanie: When a firm pays based on originations, the larger the firm, the harder it is to track that manually. So, you have to use a system that is sophisticated enough to handle variables. For example, originations can change if a rainmaker leaves the firm and doesn’t take the case/client/matter with them for whatever reason. They can also change if an attorney starts as an associate and is then promoted to partner, as those roles are paid differently. There isn’t a set way that situations like these are handled; I’ve seen it done in different ways at different firms.
You also need to be able to do split originations and have origination split changes throughout the year through a combination of an accounting system and a manual system. As of now, we do find that we pull information out of our practice management software to get the raw data but still have to manipulate it a bit to line up with the actual compensation plan.
Amanda: At the end of the day, we’re all trying to get to the same outcome, which is getting the numbers where we need them and making sure we can all make educated decisions as a result. Stephanie functionally gets everything we need in terms of origination in place right at the beginning of the year, setting us up for success throughout the year.
Stephanie: Origination is a combination of an automatic and manual workflow. That’s why we originated the “two-look” process. Anytime in our compensation program where manual data entry is required we double-check each other’s work. It is a team effort.
Stephanie: Everything changed when COVID hit!
Amanda: It’s true. Some firms place a lot of value in business development, so those compensation plans might have a component of needing to produce a certain number of business development hours or needing to attend a certain number of functions throughout the year. When everything was shut down during COVID, that was interesting because those firms had to rewrite compensation plans because they were very heavily based on that origination that wasn’t happening as much.
Stephanie: Sometimes that requires us to create a second budget based on what we think might happen because obviously, the last two years were so up in the air. There is a lot more playing it by ear now.
Amanda: First of all, make sure you can easily measure it and report it before it becomes a component of compensation, even the discretionary portion. And if you’re using a third-party system, (hopefully you are) you want to make sure what you want to measure can be reported by that system. While it’s not always cut and dry, if you manage expectations early on and keep stakeholders informed throughout the year it’s easier for everyone.
I also recently read two books that I highly recommend for anyone evaluating their law firm compensation model: Compensation Plans for Law Firms by James Cotterman and Dividing the Pie: Law Firm Compensation Systems by John Westcott, Jr.
Compensation is also so personal; I would recommend hiring a consultant or a neutral third party to review it and make recommendations.
End-of-year compensation is a tough time of year. You’re pulling a lot of reports and making changes on the fly in order to deliver the best outcome for all involved. While you’re going through the process, (which you may be currently and that’s why you’re reading this) it is important to think about ways you can prevent yourself from having to reinvent the wheel next year.
Don’t lose sight of all the work you did to close out the year. Take a moment to reflect in January to make sure your team is in alignment and ready to go with smoother processes in place for the year ahead with these tips we’ve provided today.
Tis the season for law firms to give back and expand on their charitable endeavors! For some firms, this may be a one-time holiday event, while others may choose an initiative that continues into the new year and beyond. Whatever the case, giving back helps firms solidify themselves as members of their communities with a vested interest in their people and their wellbeing, and also provides a powerful brand-building tool.
Let’s explore the various aspects of law firm humanitarianism, including the benefits of giving back and some ways that law firms can serve their communities in the holiday season and throughout the year.
It should go without saying that the best reason for giving back to the community is helping those in need. Legal professionals should take an interest in the communities in which they work and the people they serve, which includes taking steps to address unmet needs. A charitable spirit is a perfect reason to give back, but it is far from the only one.
A 2019 Forbes article discussed the value of corporate philanthropy. It talks about the “do-good renaissance” currently taking place within the business world, where brands increasingly seek ways to do good in the world. This expansion into community giving is partially due to the industry pressure of keeping up with their competitors, but it also occurs in response to consumer expectations.
Consumers want to patronize businesses positively impacting the world, and that includes law firms. They appreciate when companies take on these endeavors as their responsibility.
This is particularly true among younger consumers who see their patronage as an indirect way of also giving back, so they choose businesses that engage in charitable ventures towards social good and actively support causes they also care about. Giving back helps firms increase client and lead engagement.
Community involvement also helps law firms to:
When developing and implementing a community service plan, your law firm should consider some important factors. First, take a serious look at your community to identify opportunities to provide assistance. For example, is there a large homeless population in need of assistance? Perhaps childhood hunger is a major concern, or the local sports league needs sponsors. You should evaluate your practice and employee strengths and interests, then select activities that capitalize on them.
Once a community need is identified, you can establish a goal and get firm employees invested in the plan. It’s easy to write a check and walk away, but law firms benefit much more by involving employees in the giving back process.
By providing employees with an opportunity to give, law firms promote morale and collaboration among the team. For a single event, firms can divide tasks among firm members. For an ongoing initiative, firms may set aside a certain number of hours for employees to volunteer annually.
An important part of execution is sharing the charitable plan with your law firm’s clients and the public at large. These stakeholders want to see the impact of your community investments, so make it easy for them to find it. Include a page on your website that highlights the firm’s commitments. It could display the number of volunteer hours donated by firm members or the number of people helped through firm initiatives. Some firms choose to highlight the amount of money donated throughout the year.
This promotion may feel a bit unethical and against the charitable spirit, but the more profitable a law firm becomes, the more it can give back to the community. Highlighting the firm’s impact on the world helps to attract new clients and satisfy current ones. It all comes full circle, your firm should not shy away from sharing its work within the community.
Every law firm brings different skills and passions to the table, so it’s important to find initiatives that fall within your practice culture. Here are some ways that law firms can make a difference within the communities they serve:
This is probably the most common form of law firm community investment. Many firms maintain a system for choosing and handling pro bono cases. Some do so through legal volunteer organizations that specialize in a specific practice area, while others allow their members to take on pro bono cases internally within their firms.
Most nonprofits and community organizations need monetary donations to keep their operations running and continuously providing services, so a check is always greatly appreciated. Your firm may choose to identify a single organization for a donation or it may choose a particular cause and give donations to multiple agencies working within that space.
You can also sponsor a fundraiser with all proceeds going to a nonprofit. For the active members of the firm, a charitable sports tournament or race could be a great way to raise money while promoting teamwork. Your firm could also offer to match monetary donations that firm members individually make to their favorite nonprofits.
Pro bono work is not the only form of volunteerism available to attorneys. Every community has organizations that need volunteers in order to maintain their operations. Firms can encourage members to find a cause that they personally care about and allow them to use a set number of firm hours each month to further that cause. Alternatively, the firm can identify one collective cause or organization for members to volunteer with on a regular basis or at a designated firm “day of service.” Both options provide law firm members with an avenue for volunteering their time to the community.
Law firms can provide valuable guidance to young people through mentoring programs. This may look like time devoted to school-aged children’s programs or college student internships. Firms may also develop mentoring programs that assist adult community members, such as resume writing workshops or life skills training courses.
Community members look up to legal professionals and many would welcome an opportunity to learn from a law firm partner or associate. Through mentoring programs, law firms can give back to the community in the short term while positively impacting participants for years to come.
Whatever endeavor a firm undertakes, it must be done with a spirit of authenticity. Clients are savvy, especially within today’s environment, and they can easily recognize actions that are done for the purpose of furthering a firm’s agenda rather than uplifting the community. No matter how big the effort, a lack of sincerity can result in a negative pushback. The greater visibility that results from a law firm’s community actions are added benefits, but marketing should not be the driver behind community engagement.
Community engagement helps law firms meet two important needs: contributing to making the world a better place and strengthening the firm’s reputation while bringing in more business.
Especially during the holiday season, law firms should embrace a charitable mission and craft a plan for giving back.
If you’re like most people, managing your clients’ funds is unfamiliar territory. Most of us don’t have an accounting background, and accounting isn’t a subject that’s included in law school curriculums.
You can’t just tuck your clients’ settlement funds in with the rest of your law firm’s general funds, and you certainly can’t stuff those crisp dollar bills in a pillowcase for safekeeping. To establish trust with your clients and ensure your law firm upholds its ethical responsibilities, you need to learn some accounting principles.
In this guide, we’ll give you a quick overview of the basics of attorney trust accounts and describe how you should manage settlement proceeds and other funds on behalf of a client.
(Note: your state will have its own rules governing how you handle client funds. We encourage you to read those too.)
Simply put, you need to know about your firm’s financial performance. But, you also need to be able to meet your legal, regulatory, and ethical obligations, such as preparing your federal and state income tax returns and managing your clients’ money. Accounting practices enable you to prepare financial statements, capture expenses, and create budgets and forecasts. The better you understand your law firm's finances, the easier it will be to make smart decisions for your business and to avoid legal and ethical headaches.
Let’s start by reviewing some common accounting terms that you should know.
There are two main reasons that lawyers should keep their clients’ funds separate from their personal or business operating accounts and from other fiduciary accounts. First, lawyers have a fiduciary responsibility to their clients. Second, it’s essential that the public have confidence in the trustworthiness of the legal profession.
That's where trust accounts come in. Trust accounts are designed to safeguard client and third-party funds from loss. These separate accounts protect clients’ funds from being used to satisfy the firm’s financial obligations and from being seized by the firm’s creditors.
Not all client funds need to go into a trust account. A general rule of thumb is that if funds are for tasks that aren’t yet completed, they should go into the trust account. But if the funds have already been earned, they should go into the firm’s operating account.
Here is a list of common client funds that you should place in a trust account:
It’s equally important to know what funds shouldn’t go into a trust account. By depositing the wrong funds into a trust account, you change the nature of the account, opening it to the risk that it could be raided by firm creditors.
Here is a list of funds to avoid depositing in a client trust account:
IOLTA, which stands for interest on lawyers’ trust accounts, is a type of trust account that raises money for charitable purposes, primarily for providing legal services to indigent people. IOLTA programs came to be in 1981 after Congress passed laws allowing checking accounts to earn interest and after the Supreme Court and state court rules created IOLTA programs.
All 50 states, plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, operate IOLTA programs. The majority of states require lawyers to participate, though two programs are voluntary and four others allow lawyers to opt-out.
When lawyers receive a large sum of money that belongs to a client, such as a settlement payment or advanced fees, they should deposit the money into a trust account, where the funds can earn interest for the client. However, if the amount of money is small or if the lawyer only holds the money for a short time, the costs of collecting interest might outweigh the amount of interest the funds can earn.
However, an IOLTA account allows lawyers to deposit smaller funds from one client into a pooled, or combined, trust account with other short-term client funds. IOLTA trust accounts are typically checking accounts to facilitate fund access.
Because it is unethical for lawyers to benefit financially from funds that belong to their clients, lawyers can't earn interest on these accounts. With IOLTA, the interest that the funds accumulate is passed on to each state’s IOLTA program to fund charitable causes.
The goal of an IOLTA is to offer access to justice for individuals living in poverty without taxing the public or charging lawyers and their clients. The interest generated in IOLTA accounts supports civil legal aid and improvements in the justice system.
More specifically, IOLTA programs use the interest generated to fund free, non-criminal legal assistance for low- and middle-income people. The assistance includes helping provide access to health care, housing, government benefits, employment, and educational services. These services are provided by lawyer volunteers on a pro bono basis and by legal aid attorneys.
IOLTA funding also supports self-help and other educational resources, such as legal information websites and legal assistance hotlines. Other programs supported include alternative dispute resolution programs, public service projects, victim services programs, court-appointed special advocate programs, pro se assistance resources, minority lawyer recruitment initiatives, and law school scholarship programs.
IOLTA programs work with financial institutions to maximize their revenue, requiring banks to pay interest rates comparable to non-IOLTA accounts and negotiating to increase interest rates and lower service charges.
To find the IOLTA program in your jurisdiction, visit the National Association of IOLTA Programs directory.
Trust accounts are governed by state rules of professional conduct. Most of these rules are based on the American Bar Association’s Model Rules of Professional Conduct. Model Rule 1.15, titled “Safekeeping Property,” sets forth lawyers’ obligations with respect to client and third-party property:
(a) A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property. Funds shall be kept in a separate account maintained in the state where the lawyer's office is situated, or elsewhere with the consent of the client or third person. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of [five years] after termination of the representation.
(b) A lawyer may deposit the lawyer's own funds in a client trust account for the sole purpose of paying bank service charges on that account, but only in an amount necessary for that purpose.
(c) A lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.
(d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.
(e) When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute.
You should always review their state’s rules, which may include additional requirements for managing funds and setting up trust accounts.
If lawyers don’t adhere to the rules in their jurisdiction for trust accounts, they’re likely to be subject to disciplinary action. Depending on the severity of their transgression, they may face anything from a reprimand up to suspension and even disbarment.
So, let’s take a closer look at how law firms can meet their ethical responsibilities for trust accounts.
When you receive funds from a client or on behalf of a client, and this money is an advance payment for services, costs, or fees or is a settlement payment, you must take great care to handle this money in accordance with your ethical and fiduciary duties. What follows is a brief summary of some of these duties:
To satisfy this duty, a lawyer must deposit client funds into a trust account that is clearly identified and labeled with the client’s name or as an IOLTA account.
Be especially careful when setting up an IOLTA account. It’s very likely that you'll need to choose a financial institution that your state bar has approved before you can set up an IOLTA account. The bar may have specific registration requirements that you must follow. You may need to register the account with your state’s nonprofit that administers civil legal services. You’ll also need to obtain the nonprofit’s taxpayer identification number.
Here are some suggestions that may help you avoid depositing funds into the wrong account.
You must avoid commingling your firm’s operating funds with client funds. Depending on the number of funds that you are holding for your clients, you will need to proceed in one of two ways with the allocation of funds:
When you include client funds in an IOLTA account, you have an ethical responsibility to manage each client’s funds separately. To do so, you will need to set up a ledger for each client. You can set up a ledger in a legal practice management platform, or you can use Excel or accounting software like QuickBooks.
For each client, you must maintain a separate ledger of all funds received and deposited and all funds paid or distributed out of the account. You must also show the balance of funds in the trust account.
Note that there is one exception to the rule against commingling client and firm funds: you are permitted to keep a reserve of firm funds in your trust account to cover bank and credit card fees, so long as you maintain proper records.
Every time you receive or disburse funds from a client’s trust account, you must notify your client. That means you must contact your client whenever you deposit money or withdraw money to cover incurred expenses or pay for fees that you’ve earned. You must give the client a statement of the services you rendered or the expenses you paid on their behalf. This statement must also show the amount you are withdrawing from the account to cover these costs.
In some states, you may be required to notify your clients of the amount they owe before you take the money out of the trust account. This advance notice is required to allow the client to dispute the fee or expense. If you don’t comply with this rule, you might face a claim that you engaged in the misappropriation of client funds.
Here are some tips that will help you avoid fee disputes:
Clients have the right to ask for details about their funds. When this occurs, you must provide a report that shows how you have used their money in a timely manner. This is why it’s so important to maintain accurate records of client funds at all times, so you have an accurate audit trail showing all client-related fund activity.
This report, called a client trust ledger, shows all deposits and withdrawals from each client’s trust account in chronological order. Note that no account should ever have a negative balance, which would indicate that you’re disbursing money that you have not received.
Additionally, every month, you should reconcile your transaction records against your client trust accounts. Most jurisdictions require lawyers to reconcile their accounts on a set schedule, whether monthly, bimonthly, or at the time of audit.
Law firms have a unique way of reconciling their accounts: three-way reconciliation. This process checks your law firm’s books against the trust account balance and all individual client ledger balances. The sum of all of the individual client ledgers must match the balance in your books and the account balance.
To perform a three-way reconciliation, take these steps:
Three-way reconciliation offers yet another safeguard to protect client funds. It ensures that all money entrusted to your firm is correctly kept and isn’t being paid to cover another client’s charges, firm expenses, or bank fees. It’s important to conduct this activity frequently because if the bank has made an error, then you only have a short period to request a correction. It also ensures that if you have made an error, you correct it quickly to minimize the risk of harm to your client.
Here are some tips to reduce the risks in the account reconciliation process:
Handling trust accounts is challenging, especially when you have so many other responsibilities. But, lawyers are ultimately held accountable for all of their client funds in trust accounts. That’s why it’s so important to regularly review your accounts for compliance and take steps to avoid the most common trust account mistakes:
Lawyers should not mix their operating funds and client funds in any account. But while this principle sounds simple, it’s hard to implement.
Say, for example, that your client sends a check to cover both legal fees and costs. You’re being paid a flat fee for services, and the costs will cover the court fees when you file the client’s personal injury lawsuit. It may be tempting to deposit all of the fees in your operating account, because the bulk of the check is covering your fees, and write a check from one account to the other. However, that would be impermissibly commingling fees.
Because the check covers costs that have not yet been incurred, you should deposit the check into the trust account to hold those fees for your client. Then you should write a check payable to your operating account for the fees. It’s important to take all earned fees out of the trust account to pay for client invoices to avoid commingling.
It always takes some time for checks to clear. That’s why it’s important to get notice that a deposit has cleared before you write a check against funds in your trust account; otherwise, you’ll have a negative balance, which will show up when you reconcile your accounts and be a red flag that you aren’t following appropriate accounting procedures.
Don’t be pressured into sending clients settlement proceeds immediately. Wait for a notice from the bank that the deposit has cleared. To avoid upset clients, explain your bank’s policy on holding funds and your procedures for disbursements in advance.
If your firm isn’t tracking funds properly, or if you are short on cash one month, it can be tempting to dip into a trust account to pay for business-related expenses. After all, you’ll earn the money soon enough, so it doesn’t matter whether you wait until you’re actually ready to invoice the client, right? Or you might plan to put the money back into the trust account as soon as more money comes in.
Either way, this is wrong. It’s unethical to transfer unearned money from the trust account to your operating account to cover expenses for your firm or another client. You’d also be violating a number of other ethical duties, including failing to account for your client’s funds, commingling business and client funds, and failing to maintain accurate records.
If you don’t limit who has access to your trust accounts, you’re putting client funds at risk and breaching your ethical responsibility to safeguard them. And if you aren’t following good accounting practices and regularly reconciling your accounts, you may not notice if a check goes missing or if someone writes a check to themselves until it’s too late.
Law practice management software and online banking systems can alert you in case of problems like these. You can also ask the bank to send you an email whenever a check clears. Additionally, consider implementing physical safeguards, such as keeping trust account checkbooks locked in a cabinet.
Memories fade, so recordkeeping is important. It’s especially important when you have a fiduciary duty to track your clients’ funds and to be able to give clients account statements on demand.
To make sure you don’t lose track of checks, make sure you write the client’s name and matter number on each check that you issue. This will also help you reconstruct records in the event your records are lost, hacked, or destroyed. If you have to rebuild your client ledgers using bank statements and old checks, you’ll be able to more quickly get back up to speed.
When you receive funds for a client trust account, don’t record it as income in your accounting software. These funds are your client’s property, not your own. If you record them as firm income, not only are you breaching your fiduciary duty to your client, but you are also creating a potential mess with taxing authorities and regulators, including the IRS.
ABA Model Rule of Professional Conduct 1.15 recommends that lawyers should maintain trust account records for at least five years after the termination of the representation. Some states require longer periods and start the retention period with the last disbursement of funds.
Best practices suggest that you should keep online records as well as hard copies of every important document. Print and securely store all client ledgers, monthly reconciliation reports, and trial balances for receipts and disbursements. And, make sure to back up your electronic records frequently.
The best approach to managing retainers is one that complies with your jurisdiction’s requirements, meets your clients’ expectations, and is the easiest for you to manage.
In many cases, that will mean that you should keep client retainers in your trust account. A few jurisdictions will allow you to keep a retainer in your operating account. Check your state’s rules if you’re not sure of the requirements.
No matter which account you choose, the key is to keep good records of your client trust funds. You must make sure you know which client and matter to associate the retainer with. You must also keep each client’s retainer funds separate, and, if you’re keeping the retainer in your operating account, keep it separate from other firm funds. This is why client ledgers are so important: you must be able to segregate each transaction for each client and keep up to date with each client’s balance.
It’s also prudent to keep your clients apprised of the status of their retainer balance. That way, when the retainer fee is running low, you won’t ever have work in progress that exceeds your retainer balance. Legal practice management software can alert you when a client’s retainer dips below a certain level.
Settlement checks can pose another accounting quandary for lawyers—especially if settlement checks are jointly payable to the lawyer for fees and expenses with the balance going to the client.
Settlement checks are the client’s property and should be deposited in a client’s trust account or an IOLTA account—never in the firm’s operating account. Before depositing the check, make sure the client and the firm both sign the check if the check is made out to both parties. Record the client number, matter number, and matter description on the check. Copy or scan the check, saving the copy in the client’s file.
The lawyers should present information to the client that explains how they propose to disburse the funds. This statement should spell out what funds will be payable to the client, what portion will cover fees and expenses, and what if any, portion will be paid to a third party. You should be able to get a copy of the expenses paid from your practice management system.
Sending a report for the client to review also allows time for the settlement check to clear. Lawyers cannot advance funds from a trust account to pay the client while they wait for the bank to process the check.
After the check has cleared and the client has approved the disposition of funds, the lawyer should transfer the funds from the trust account to the client. Before doing so, prepare an invoice detailing your fees and expenses, then write a check from the trust account payable to your firm. The check should include the client’s name and matter number. Be sure to record the transaction in your client’s account ledger, then deposit the payment in your firm’s operating account. Write any other checks to your client and third parties as required by the settlement statement.
Finally, check for a zero balance. Run a client ledger report that shows all deposits and checks written. When you’re satisfied that you’ve reconciled all of the transactions, send the settlement statement, settlement check paid invoice, ledger report, and signed settlement agreement to the client, saving a copy of everything you send in the client’s file.
With so many moving parts in trust accounts, it’s easy to see how a lawyer might make a mistake. That’s especially true if you’re using manual bookkeeping methods or Excel spreadsheets to keep track of your accounts. It’s always prudent to run your accounting methods by a professional accountant who has experience with trust accounts and IOLTA accounts.
If you're worried that you've made a mistake, a smart first step is to check with a practice management advisor in your state. Many of these advisors work confidentially, so they can advise you without reporting any ethics violations to the bar. Visit your state bar website to learn whether you have access to a free advisor.
In most cases, the safest bet is to self-report a mistake and take good faith steps to correct it immediately. The failure to report can be as bad as, if not worse than, the initial accounting mistake.
As you can see from this guide, trust accounting can be challenging. But it doesn’t have to be another headache on top of the stresses of your law practice.
The first step is to put down the pencil and paper—or even the Excel spreadsheet. And if you want to really get serious about your accounting and recordkeeping, you need to ditch small business accounting platforms that weren’t designed specifically to meet lawyers’ needs.
You need a legal practice management platform that includes full billing and accounting capabilities, making sure that you’re able to track every last penny and satisfy your ethical obligations to your clients.
To find a tool that’s able to resolve your biggest trust accounting challenges and meet your firm’s needs, look for a platform equipped with the following capabilities:
Features like these can make the difference between an inefficient trust account management process that’s prone to errors and bookkeeping and accounting systems that run like clockwork, enabling you to meet your ethical obligations and client trust account reporting requirements.
A budget is an estimation of revenue and expenditures for a specific period of time.
By thoughtfully creating a budget ahead of the coming fiscal year, you can better align anticipated revenue and expenses with your law firm’s goals. Successful budgeting involves critically thinking about your financial expectations so that strategies can be implemented to promote greater profitability and prevent financial pitfalls.
Budgets also provide a measuring stick for periodic review throughout the coming year to determine whether desired milestones are being met and adjust as needed. With a comprehensive budget, you can be proactive in addressing your firm’s financial issues before they become serious problems. This will provide a bird’s eye view of financial performance on a monthly, quarterly, or yearly basis which will help facilitate adequate forecasting.
Therefore, law firms need a budget to help with managing, mitigating, and minimizing financial risk.
These nine tips will help you build a solid budget for your law firm as you wind down this year and prepare for 2022:
Setting goals is the first step in budgeting. Goals act as the benchmarks of every budget and dictate the allocation of firm capital. In an environment centered around putting out one fire after another, goals allow you to set your focus on something positive.
First, brainstorm all the goals you’d like the firm to achieve within a particular time frame. Classify them according to the following categories:
Make sure these goals are specific, measurable, and realistic to current circumstances. Keep these goals in mind as you create your law firm budget. Look for opportunities to further them, in addition to identifying potential pitfalls that may derail your progress. Also, don't forget to review your firm’s goals throughout the year, just as you would review the budget. This will help keep you focused and moving in the desired direction.
To grow, law firms must invest in areas like technology, people, marketing, and other revenue-building tools. Think about what your firm will need in the coming year to attract new prospects and continue providing high-level service to existing clients. Once you have identified those expenditures, include them in your budget.
Remember those realistic goals that we spoke about in tip #2? Well, the same concept applies to your revenue expectations.
Let’s start with what you should classify as revenue. First, there’s the revenue your firm will incur through daily operations before any deduction of related expenses. Then, there’s the revenue that remains after all expenses are deducted. This is your firm’s net income, otherwise known as profit or the bottom line.
Just like goal setting, start by thinking about an end result and what your firm will need to do in order to achieve it. For instance, how many clients will you need to service over the next three months to bring in the desired level of revenue?
One more point about revenue:Â be sure to consider its seasonality, as different practice areas may incur more or less work at different times of the year. With that awareness, you can account for these business patterns and budget accordingly, so that necessary funds are still available during the less profitable months.
Keep your eyes on the prize - and the prize is always the profit margin. The profit margin is the main benchmark that indicates the wellness of your firm’s financial position. It measures the effectiveness of your firm’s income and expenses. It also points you in the direction of the most successful revenue streams and the most problematic expenses.
Every budget includes costs and spending - there’s no way around the fixed and variable costs of doing business. The goal is to tackle them in a way that makes the best possible use of revenue.
Fixed costs are expenses that remain somewhat consistent over time. These may include internet, telephone service, and software licenses.
Variable costs change depending on use and other factors. They may include travel costs, insurance premiums, marketing strategies, and continuing education fees. Incidental one-time expenses also fall under the variable costs. These are unexpected expenses that pop up from time to time, like equipment repairs or the cost of revamping your law firm website.
Both fixed and variable expenses should be factored into your 2022 budget.
If the past two years have taught us anything, it is to expect the unexpected. That’s why it’s necessary to budget up to 10% over the estimated figures for expenses and revenues. This will help ensure that your firm is adequately prepared for any unpredictable event that may occur during the coming year.
The uncertainty of the times has resulted in some budgeting trends that reflect a legal environment still recovering from a pandemic. These include:
In this digital era where information is just one click away, you’re never alone when it comes to accessing knowledge and expertise in areas that benefit your law firm. Numerous budgeting tools are readily available and specifically customized for the legal profession. Access these tools for assistance with the budgeting process or reach out to an accounting professional for help with creating a solid budget that will put your law firm in the best possible financial position for 2022.
Legal operations is everything that it takes to run a law firm aside from the actual practice of law. It encompasses strategic planning, legal project management, financial oversight, and legal industry expertise.
The goal of legal operations is to improve law firm performance. Legal operations experts cover a broad range of fields, including data analytics and reporting, engineering, finance, and marketing. Operations professionals work with law firm management to choose the right legal technology, identify and manage risks, and monitor compliance. And above all else, their goal is to deliver value, whether that’s through keeping costs down or increasing productivity and efficiency.[/vc_column_text][/vc_column][/vc_row][vc_row type="in_container" full_screen_row_position="middle" column_margin="default" scene_position="center" text_color="dark" text_align="left" overlay_strength="0.3" shape_divider_position="bottom" bg_image_animation="none"][vc_column column_padding="no-extra-padding" column_padding_position="all" background_color_opacity="1" background_hover_color_opacity="1" column_link_target="_self" column_shadow="none" column_border_radius="none" width="1/1" tablet_width_inherit="default" tablet_text_alignment="default" phone_text_alignment="default" overlay_strength="0.3" column_border_width="none" column_border_style="solid" bg_image_animation="none"][vc_column_text]The seemingly sage advice to “run your law firm like a business” misses the mark. Law firms are businesses. They exchange services (and sometimes goods if they’ve productized their services) for money. They also meet the standard definition of a “business,” which is an organization engaged in commercial or professional activities.
So why have so many law firms resisted the idea of acting like the businesses they are?
Some lawyers claim it’s because the law is a noble profession. But, it’s more likely that law school doesn’t teach them how to run a business. Many aren’t well-versed in financial principles. They don’t value measurements and metrics.
For too long, lawyers have focused on practice, not process. But in recent years, clients have forced law firms to take a hard look at the numbers, their productivity, and their operational efficiency. With competition at an all-time high and clients demanding better service at a lower cost, it’s essential for law firms to rethink their business model.
Enter legal operations.
In the late 1980s to early 1990s, legal operations was a fledgling concept among in-house counsel, with corporate legal departments primarily focused on managing outside counsel.
Over time, that focus shifted. By the mid-2000s, corporate law departments were starting to look to legal operations for strategic insights into their outside counsel spend and risk profile.
In the last 20 years, the role of legal operations has become much more prominent, helping organizations manage complex legal issues and retaining the services of legal service providers to drive efficiency and lower costs. These issues continue to be focal points today, along with one more: establishing a culture of continuous improvement.
Today’s clients continue to place pressure on law firms to deliver competitive pricing and better service. In response, firms are striving to maximize their resources so they can do more with less. Now, law firms have adopted much of this mindset, looking for ways to reduce costs, automate processes, and drive greater efficiencies.
The Corporate Legal Operations Consortium (CLOC) has identified 12 key legal operations functions. Though CLOC envisioned these practices would be implemented by in-house legal teams, most apply to legal operations roles in law firms today.
Here is a list of the typical functions:
All of these functions may be combined within a department, or they may be carried out separately under the oversight of a legal operations manager.
The biggest challenge that legal operations professionals face is change management. The law is a system based on precedent and law firms are no exception. Lawyers are generally change-averse and prefer to maintain the status quo. It’s hard to convince lawyers that they need to do something differently, especially if what they’ve always done seems to still be working.
Other challenges include budgeting and resource allocation. Law firm leaders are often reluctant to add budget items or headcount to new initiatives, especially if they’re still skeptical about the value that a legal operations team can provide.
Tackling these challenges will require you to establish a business case for a legal operations role or team. If you can quantify the payoff in terms of time saved (automating manual processes with technology), dollars saved (optimizing vendor pricing), and client satisfaction (knowledge sharing and more efficient staffing), you’ll be more likely to convince firm leaders that legal operations is worth the investment.
Recruiting a strong leader with a finance background, technological acumen, and legal experience, whether as a practicing attorney or as a leader in another firm, can lend the department credibility. And, of course, getting quick wins on small projects early can prove value and increase the likelihood of buy-in on more ambitious projects.
Legal operations helps law firms drive efficiency across the board.
Between timekeeping, billing, and accounting, law firms have a lot to manage financially. That’s not even including client demands for lower rates and alternative fee arrangements! Legal operations can help firms build financial models that help choose optimal fee arrangements that please clients while yielding a profit. They can also compare firm vendors and help structure competitively priced deals.
In other words, legal operations helps law firms create more value.
On the operational front, legal operations rescues overworked staff from a variety of tasks, including contract management, knowledge management, and data governance. Legal operations professionals can help firms choose the right solutions to capture and track information to ensure nothing falls through the cracks, empowering lawyers and other staff to do more with less.
Law firms are known for being reactive. But, legal operations allows firms to adopt a more proactive approach. For example, legal operations can use data analytics and reporting to predict the right course, set reasonable goals and metrics, and develop a long-term strategic plan to improve the firm’s market position.
Law firms often invest in solutions serially, looking to solve one problem at a time, but with legal operations software, the key is to find a comprehensive solution that can evolve along with your law firm.
Effective legal operations software for law firms should handle solutions such as e-billing, timekeeping, accounting, matter management, document management, reporting, and client portals. The more interconnected these systems are, the more intelligence they deliver, and the better your firm’s results will be. It’s even better if the legal operations platform integrates with other systems, allowing firms even greater insight into matters and projects while enabling seamless client service.
Comprehensive legal operations software solutions help law firms save time, reduce costs, and improve client service. Some of the ways that law firms can use legal operations software to enhance their performance include the following:
Strong law firms can use the efficiencies generated by legal operations software to differentiate themselves in a crowded market. With the right legal operations tools in place, firms can improve their client service and deliver greater value.[/vc_column_text][/vc_column][/vc_row]
