New Year’s Resolutions

Three Ways Law Firms Can Avoid the Terror of Year-End

“Reconciliation of Accounts,” few words strike greater terror into the heart of a practicing attorney than those three words. For the liberal arts and debate club devotees that pepper law school halls around the country, few would imagine the accounting, record keeping, and math obligations incumbent upon a legal practice. It’s one of the most sobering moments of private practice, when it becomes clear that someone expects you to reconcile the accounts at the end of the year, when you may or may not be adept at even balancing your own check book.

Here, the good news: Make these three New Year’s Resolutions TODAY, and you never have to experience Year-End Terror again!

Accept that even the best mathematicians use tools, RESOLUTION: This year I will add an effective account management tool to my arsenal.

While many firms choose to hire a bookkeeper or accountant, the reality is that the more people touching an account, the more room there is for error and the more expense is involved. There is no reason to hamstring your practice with additional staff labor expenses in an already tough financial market. 

Truth is there are lots of computer programs that can walk you through the process just fine. But those companies know you are filled with dread at addressing your books, and capitalize on it with exorbitant, per user fees, and complicated features you won’t ever use.

Pro tip: No one knows banking and bookkeeping better than a bank, and turns out, no one knows lawyers better than M&T bank. M&T bank offers its attorney-clients free (you read that correctly) – free access to NOTA, their comprehensive IOLTA management system. NOTA makes all of your bookkeeping worry free because it is reconciled directly with your M&T IOLTA account, your numbers are from bank documents, not your typo from tired hands after court.

Beyond that, it makes keeping track of IOLTA funds easy because each deposit or withdrawal can be directly linked to an individual client’s account. Individual client accounting documents can automatically be printed – so briefing clients on their funds becomes effortless. 

Procrastination not only slows you down, it costs you money! RESOLUTION: This year I will enter my billing as I complete my work, I will not try to recreate it retroactively.

Every lawyer has gotten the call, an irate client trying to understand why they were billed .2 hours for sending an email, “It doesn’t take 12 minutes to send an email!” the client exclaims. How the lawyer responds to calls of this nature can be directly linked back to what their hourly billing practices are. If the attorney contemporaneously memorializes their hours, they will feel confident explaining, “Mr. Client, it actually did take me 12 minutes to draft that email because I had to pull your file, ensure that my staff had not added any faxes or new correspondence to the file. Then I had to summarize the current status of the file in the email because the email was being cc’d to the court, then I had to call opposing counsel to get their consent for the adjournment, and only then did I get to draft the email and send. Attorneys who bill right at the time of occurrence know they spent the time, and don’t mind explaining how they spent it. 

By contrast, if you are a practitioner in the monthly scramble to recreate your hours, you will inevitably bill less, in an effort to avoid having to offer explanations that you don’t remember. Your 8 hours of work, ends up 4 hours of billables, and you end up having to work 16 just to ensure you make up and can bill 8. This catch-up game only gets worse at year end. Clients expect their accounting statements from their IOLTA funds, and with everyone feeling the pinch from holiday present shopping, Year-End means all of your clients will be scrutinizing EVERY. SINGLE. CHARGE. Spare yourself the holiday haggle, enter your client billable hours as you complete them.

New Year, New You, Just in time for some brand-new anxiety over tax season. RESOLUTION: This year I will keep organized IOLTA records for my accountant, so that my quarterly estimates are accurate. 

Accounting and bookkeeping are stressful enough for attorneys, add to that fear of not having enough for fourth quarter tax payments, and you have the plot-line for the perfect Year-End horror story. Accountants aren’t magic, their figures are only as good as your books.

As much as lawyers may love their accountant to be the scapegoat when fourth quarter payments catch them by surprise, the truth is my lawyer friends, the buck stops with you (before being promptly collected by Uncle Sam).

Most lawyers know that IOLTA funds need to stay segregated from their operating account. What lawyers are often negligent about, is transferring earned funds from their IOLTA account promptly, and recording those funds as income for that quarter. In a misguided effort to avoid running afoul of their state’s IOLTA rules they let the funds languish untouched in their IOLTA account until year end (let’s be honest, most lawyers only know the gist of their IOLTA responsibilities anyway).

Only then in Q4, does your accountant for the first time learn that there was quite a bit of earned income in first, second, and third quarter that was never listed anywhere, and now you owe money for in yet another Year-End Nightmare. 

Avoiding IOLTA and its rules is the fastest track to Year-End disaster. Finding a bank, and software that understands the demands of a law firm, as opposed to just a general business, is essential to IOLTA managements and tax season success. 

Juggling legal cases is one thing, but juggling client funds is a no-no. Lawyers ethical rules are very clear and strict about a lawyer’s obligation to safeguard client funds. Similarly, the tax department has strict rules about reporting income. Either way, we can all agree that no one wants to start their new year with a tax audit, or a grievance for misappropriating client funds. 

The good news is, if you follow resolutions one and two, resolution three becomes a breeze. With a click of a button at the end of each month you could be printing a report documenting all of the withdrawals from the IOLTA account, and their respective notes, and instantly firm income that needs to be reported, would be identified. 

When you sit down this New Year’s Eve, make sure the health, happiness, ethical & legal compliance of your firm is right up the at the top of your list. Before you let the anxiety set in, look at this list, and remember there are resources available to help you and your firm stay on the right track.