New Year’s Resolutions for the Law Firm Accounting Department

Jan 7, 2019 10:00:00 AM | Michael Marget

Last week, the ball dropped in Times Square and folks attempted to sing Robert Burns’ 1788 poem, “Auld Lang Syne,” despite not knowing the full lyrics and being unsure of the song’s true meaning.[1] Most people make well-intentioned resolutions to make changes to improve their lives when toasting in the new year.

Since the accounting department has a professional life, it makes sense to examine its operational health and resolve to chart a course for self-improvement with accounting procedures in the coming year. Here are some resolutions to help your accounting department achieve higher success in 2019:

I Resolve To...

Prepare & Publish a Work Plan for 2019

The accounting department performs certain tasks every month: e-billing, generating client invoices, bookkeeping, and publishing law firm financial and management statements, among other law accounting services. Other deadlines will arise quarterly or at predetermined dates during the year. For a law firm accountant, it’s important to be aware of each calendar deadline and plot backwards from the required or desired completion date to ensure that all the needed work is completed in a timely manner.

A useful organizational tool is to record all of these “begin to” and “finish by” dates in your Outlook calendar. It is a superior approach in comparison to simply relying upon memory recall to get things done on time. Use those dates to create a calendar for lawyers to manage accounting department expectations and obtain their buy-in. (For example, if all timekeeper time is entered into the computer by the specified date, then prebills will be distributed on this day each month.)

Prepare a Comprehensive Budget

Drafting a law firm budget takes time, but preparing one is a fundamental responsibility of the accounting department. Every law firm requires a budget, if for no other reason than to inform partners that their work efforts will generate a particular amount of compensation for the year if certain criteria are met.

A budget is a comprehensive plan for achieving the law firm’s goals; it is a financial and operational roadmap for the journey. Once prepared, it is essential that the monthly law firm financial statements reflect the firm’s performance not merely against law year, but the year-to-date budget as well. You cannot reach an unknown destination without a map, and the same can be said about achieving a law firm’s financial goals.

Budget Fee Revenue to Improve Lawyer Productivity

Many law firm accountants have confided to me over the years that, when budgeting revenue, they simply peg the number at a figure “a little higher than last year,” but a comprehensive revenue budget requires more time and detail than estimating next year’s expenses. Setting a law firm’s revenue goals should be a lot more complex and nuanced than that.

Revenue budgeting requires a rigorous timekeeper-by-timekeeper analysis of both historical billable hours, and also hours that should reasonably be expected from each person. In addition, hourly rates, billing and collection realization, and inventory turns (the correlation between historical annual fee billing and fee revenue) all play a role in the calculation.

When presenting the revenue budget to the law firm, be sure to provide alternatives and illustrate the potential outcome of a few simple strategic changes to the firm — if billable hours could go up by x%, and effective hourly rates by y%, then illustrate how reducing realization losses and improving billing and collection turnaround times can boost the bottom line. The revenue budget should motivate the firm to achieve its potential. What’s better? Hitting a revenue number “a little higher than last year”? Or, falling just short of a larger target?

Review & Improve all Procedures & Work Product

Examine all the work product you generate each month and consider whether the the quality could be improved by doing things differently. If you were starting from scratch, would you design the general ledger differently? What about the financial and management report presentations? Can expense reimbursements, vendor payments, or payroll processing be improved? Is your law firm accounting software adequate? Could outsourcing accounting services accomplish certain tasks better, faster, or more cost-effectively? Adopt a continuous improvement mindset so that all law firm and accounting department goals are achieved more efficiently and productively each month.

Ask ‘How am I doing? What can I do better?’

“How am I doing?” is one question that can change your life. When he was Mayor of New York City, Ed Koch would ask this question at nearly every public appearance. The responses were about what you would expect — some positive, some negative with suggestions — but, more importantly, the voters appreciated the question. Lawyers are the accounting department’s constituents and deserve no less respect.

4L’s client firms welcome this question, and their replies help us do a better job for them. Whenever asking “What can I do better?” you are mimicking the oft-quoted Jerry Maguire ask, “Help me help you.” This reminds the listener that accounting department improvement is a two-way street.

Make 2019 the Best Year Ever for the Law Firm and Accounting Department!

A famous, ancient Chinese proverb from the Tao Te Ching states “a journey of a thousand miles begins with a single step.” The same can be said about the challenges of continuously improving upon a law firm accounting department’s yearly performance: The first step is to resolve to begin the journey.

At 4L Law, we tailor our services to help meet the needs and goals of law firms by providing everything from monthly accounting procedures to helping host and manage cloud-based accounting software. For more information and details on our service options, and how we can help improve your law firm’s accounting procedures, contact us today!

4L Law wishes the best of luck to all law firms for the new year, and remember, we’re all in this together!

improve your law firm's financial management

[1] Harry: [crowd singing Auld Lang Syne in background] “What does this song mean? I

don’t know what this song means. I mean, ‘Should old acquaintance be forgot’? Does

that mean that we should forget old acquaintances, or does it mean if we happen to

forget them, we should remember them, which is not possible because we already forgot?”

Sally: "Well, maybe it just means that we should remember that we forgot them or

something. Anyway, it’s about old friends." Nora Ephron, When Harry Met Sally,

Columbia Pictures (1989).

 

Law Firm Accounting

Michael Marget

Mike Marget is an erstwhile large law firm manager with tours of duty as COO at Katten Muchin, Jenner & Block and CFO at Holland & Knight, among others. He’s currently president of 4L Law Firm Services which provides accounting, bookkeeping and related back office services to small/midsize law firms and co-CEO of NSource, LLC, a law firm consultancy. His blog, Law Firm CFO, is dedicated to every law firm manager who has ever asked the question, “Why me?”
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