Law Firm Finance

Outsourcing is the best way to get high-level expertise without the expense of an entire accounting team. It’s not just salaries; it’s the perks, bonuses, benefits, training, equipment, and even office space.

You also only pay for the services you need, so you can choose which ones make the most sense for your firm. For example, small firms could get away with bookkeeping and controller services. Larger firms might add CFO services to the mix.

Bear in mind that legal accounting is complex. There’s IOLTA management for a start. We only employ accountants who specialize in their specific industries. Your team specializes in accounting for law firms, so, you can rely on complete regulatory compliance, including specific state bar rules.

Their expertise, backed by advanced software, reduces the risk of fraud and ensures data security. It also eliminates the admin burden on staff, who would far rather focus on practising law and generating billable hours.

IOLTA compliance is about as strict as it’s possible to get. Mismanagement, even accidental oopsies, can be dire. If you’re lucky, you’ll get a warning or be reprimanded. If you’re unlucky, you’ll have to pay hefty fines and could even be disbarred, and it’s very difficult to come back from disbarment.

Our specialist teams eliminate that concern entirely. They also take care of the rigorous “three-way reconciliation” process every 30 – 90 days. This ensures your bank balance, client ledger, and trust account balance always match.

However, and this is important, these rules vary by state. It’s another reason why outsourcing to industry experts is recommended. You’re guaranteed a clean audit trail that tracks every dollar from deposit to disbursement. This makes auditors very happy, but the accuracy also protects your license.

Cloud-based accounting software, like Sage Intacct (a robust ERP platform), can be structured to suit just about any need. You can tailor these platforms with third-party integrations (including your practice management tools) and automation. For example, automating data entry reduces the risk of human error, enhances the efficiency of your system, and ensures consistency across your firm.

Cloud-based software also provides real-time visibility across the board. It enables you to access financial data and dashboards from anywhere at any time. This comes in particularly handy when you need to make informed decisions on the go.

Sage Intacct provides another major benefit in the form of security. High-quality ERP platforms boast bank-level security to protect your clients’ sensitive data from cyber threats.

The upshot of all this is a unified system that prevents data silos (limited visibility) while improving data flow between billing, expense tracking, and reconciliation.

KPIs are great for measuring your firm’s performance across key metrics. The data gained forms the foundation for informed decision-making, which takes the guesswork out of ad hoc strategies and planning.

KPIs depend on your priorities, your goals. However, we recommend you include these five metrics, which are critical to all law firms.

• Utilization Rate: This is the percentage of an attorney’s total billable hours. Very good for measuring efficiency.
• Realization Rate: The percentage of billable hours that are collected as revenue. Indicates client quality and billing effectiveness.
• Productivity Rate: The combination of the two metrics above, which demonstrates how well lawyers generate income for the firm.
• Work in Progress (WIP): Shows unbilled work.
• Accounts Receivable (AR): Important to manage cash flow.

We use these metric results to help you structure your fees, optimize staff, and calculate performance bonuses.

CFOs use financial data to develop long-term strategies. They’re particularly handy if you have expansion in mind because they can help you scale your firm in a way that supports sustainable growth.

In addition to providing macro-level data analysis, they can dive into more detailed information. For example, profitability by attorney and matter. You can identify the practice areas that drive revenue and which drain resources. This is important in resource allocation and budget planning.

CFOs assist in financial forecasting, identifying potential shifts in the market and growth opportunities. They also provide advisory services for things like compensation models. These can be quite complex when it comes to working out fair compensation for partners and associates. It’s important to get it right because if they think compensation is unfair, they’re likely to leave for greener pastures.

A few more benefits to end on:

• Risk assessment
• Internal control implementation
• Asset protection
• Planning a roadmap for sustainable growth
• Optimize operational efficiency