Hurrah if you are considering this avenue for working with a specialty. Maybe you just landed your first law client and want to learn what is essential quickly.
Let's start with the language you need to know. To show you understand the legal industry, it is best to "speak the attorney's language." Here are the most important terms:
Retainers:
Trust accounting is probably the most critical area to master if you choose to work primarily with attorneys. It is not a difficult concept to master, but it is paramount to learn techniques to handle this all-important account. Some of the confusion comes from the use of the word "Trust" or "IOLTA." There is a trust bank account, and then there is an offsetting trust liability account, which is a total of all of the individual client accounts or client ledgers. Remember, this is not the attorney's money until earned. Sometimes the remainder of these funds is returned. This account must balance three ways, which is known as a three-way reconciliation method:
1. The trust bank account must be reconciled to the bank statement regularly.
2. The trust liability account balance must equal the bank account balance.
3. The individual client ledgers or check registers must equal the bank account balance (less any outstanding checks or deposits).
It is always a best practice to review the rules of your local bar association and jurisdiction for compliance. Attorneys who have their trust accounts audited and are found to misuse the funds could risk losing their licenses to practice. That is what makes this task so crucial.
Work in process (WIP) is another term you will need to know. WIP is where the attorneys typically use an app to track the time spent on a matter or case until it is billed to the client in the future. If you have ever worked for a contractor client, you may already be very familiar with this term. Expenses not yet billed to a client are also part of this "work in process" account. Most law firms need to track these costs using an application so that no time goes unbilled or expenses not coded to the client's account.
As an advisor/accountant, studying the industry is how you can best help your customer. We can do this in many ways. One of my favorite ways is attorney productivity. Most partners want to know how well the firm's attorneys are producing and how much time is being billed versus worked. This measurement is known as the actual "billable hour." The formula for this is as follows:
Billable hours / total # of hours recorded in a particular period = utilization rate
It comes down to simple math, but it is an important metric to track for your client.
Accounts receivable is always a pain point for most law firms. When it comes to issues with accounts receivable that are difficult to resolve, I find that messy trust accounting comes in first and old, stale uncollected accounts receivable a close second. How do you help your client? My favorite action items are:
When working at that advisory level, it is a game-changer for attorneys to discuss exactly which metrics or KPI (key performance indicators) they would like to have tracked. Some attorneys have had accountants or bookkeepers work with them for years and years and never get asked this question. Want to shine? Offer up tracking these KPI's to them:
Discuss S.M.A.R.T. Goals (specific, measurable, achievable, relevant, and time-bound). Goal-setting is another conversation that will set the bar higher for you. Starting these meaningful conversations will set you apart from other bookkeepers.
Many attorneys also have very complex compensation programs. Some have funny names like "Eat what you kill." Learn them. Some firms will pay staff with a bonus method, and some pay attorneys based on realized bills (cash basis accounting).
Finding the best apps for the industry will also set you apart from other accounting firms. Find a workflow and stick to it. Adding automation to the app stack will help you save time and provide the law firm with much more accuracy. My favorite app stack is LeanLaw (legal time and billing application), which integrates with QuickBooks Online Advanced (accounting platform with built-in automated features) and Receipt Bank for receipt capture and document attachment. I love Liscio for client communication and for client document storage. It is so secure! And lastly, my favorite tool for high-level reporting is Reach Reporting.
Learning these details will give you a great start in the right direction for working with attorneys and law firms. Adding that ever-important advisory skill, to set yourself apart from other firms and charge more for your knowledge, makes you the person to call when working with law firms. I guarantee you will enjoy learning about this industry and helping your clients grow their firms more profitably.