Trust Accounting for Law Firms

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Maintaining correct trust balances and reconciliations is extremely important for your law firm. It seems boring and tedious but is required.

Let’s face it, you went to law school to practice law, not to do accounting. Accounting for law firms can seem overwhelming and time consuming.  Actual it is both of those, but it’s a requirement and there are standards to follow if you want to keep your license and ability to practice law.

The Basics of Trust Accounting from The Florida Bar

Here’s an overview of your requirements.  This is not to be an all encompassing list, but the basics of what is required.

Maintain a Separate Bank Account.  You are required to keep trust funds separate than operating funds.  No commingling is allowed. When setting up your trust bank account, let your bank know this is an IOLTA account.  The only deposits that go into this account is advances for legal fees, prepaid fees, and advances for costs and expenses of the client.  The only expenses paid from this account will be the legal fees earned and payment of direct client costs.

Monthly Reports.  Each month you should prepare these reports:

  • Bank Reconciliation- comparing what is in your accounting system with what has actually cleared the bank.

  • Cash Receipts Journal- a report showing all deposits for the month including, date, amount, description of what it’s for, and client name.

  • Cash Disbursements Journal- a report showing all of the disbursements made from your trust account for the month including date, check number, amount, description of what it is for, and client name.

  • Client Ledger- a report by client showing their trust account including deposits made into trust, expenses paid out, and remaining balance.

Record Retention.  At a minimum you should keep:

  • Copies of all deposit slips including the items that make up the checks

  • Receipts for wire transfers in

  • Receipts for wire transfers out

  • Receipt book for cash received from clients

  • Documents to support any checks or expenses paid

  • Bank statement

  • Copies of all cleared checks, front and back

I advise clients that more is better.  It’s better to keep too much information rather than not enough.

Let’s face it, you went to school to practice law, not to do accounting.

In order for you to bring the most value to your clients your time is best spent on client matters, business development, and training staff.  Not paperwork and accounting.

You should understand the trust accounting rules because, ultimately it is the attorney’s responsibility, but you shouldn’t be doing the day to day accounting.  Consider the benefits of outsourcing your law firm accounting. You will be able to focus your time on what matters and while experts care for your business, which leads to happier clients and more profits!  

Here’s more information on outsourced accounting services.  

Aligned CPA helps service professionals run better businesses. We’d love a chance to talk and see if we would be a good fit for your firm.  Contact us for a consultation today.


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing accounting and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

Understanding Your Financials

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When growing a business, one of the most important things you can do is understand what your financial statements are telling you.

Understanding your financials will help you spot trends, make decisions, and be more profitable because you will be more proactive in making changes.

Here’s an overview of three of the most informational financial reports. We recommend viewing and analyzing these reports at least once a month, if not more often.

Balance Sheet

This is a snapshot of what your company owns and owes at a specific moment in time. Your balance sheet contains critical information about the financial health of your business.

What your balance sheet shows:

  • Assets. An asset is what you own

  • Liabilities. A liability is what you owe

  • Equity. This is what is left over and due to owners

Income Statement

This statement, also called a profit and loss statement, is an essential part of gauging the operating performance of your business. It is a detailed statement reporting the various expenses of running your business, showing the net profit you made over a specific time.

This statement can provide a lot of information to you such as gross profit, net profit, what you spend in certain categories, etc.

The most valuable information can come from trend analysis where you are analyzing changes over time. This can show when sales increase or decrease by month, or if net profit is trending up year after year., etc.

Seeing and reacting to trends can be profitable. This is why it is crucial to have accurate accounting records.

Once you have been in business for a few years you can use past records to create accurate projections of profits for growth for the future. These projections can serve as goals for your business and help you review your income trajectory throughout the year.

Accounts Receivable

The A/R Aging is a report that lists unpaid customer balances by date range. It is used as a tool to identify which payments are overdue and haven’t been collected.

Additionally, this report can help you identify bad debts (we hope you have none!). Always try to keep debts in the 0-30 day bracket because the chances of collecting this payment get lower as you move right through columns. Or, change up your accounting policies where client’s pay upfront. Then you’re never chasing money!

All of this may seem like a lot to take in. It’s okay for it to be daunting at first, however, with a little bit of time and help, it definitely gets easier. I recommend making it a priority to review your financials regularly, ask questions, and make sure you understand what story they tell.  

 

Aligned CPA helps service professionals run better businesses. We’d love a chance to talk and see if we would be a good fit for your firm.  Contact us for a consultation today.


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing accounting and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

Welcome Our Newest Team Member

 Michelle LeNeave

Michelle LeNeave

Met our Newest Team Member, Michelle

Michelle has been providing bookkeeping services for 20 years to various businesses in the North Florida area. She spends most of her free time at a ball field or stadium watching her son play sports. She is also the proud mom of a college student but isn’t allowed to follow her around anymore!

She handles the backend accounting for many of our clients, as well cleanup of messy books, and other client projects. She also helps Joy with starting the year-end process for our small business clients. She provides an important supporting role in delivering value to our clients.

You can email Michelle at michelle@ alignedcpa.com if you have any questions about your bookkeeping, other accounting questions, or to check on the status of the project we are working on for you.

We’re Here to Help!


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing accounting and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

How to Know if Your Bookkeeping is a Mess

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Messy bookkeeping is a common occurrence we see in business. Usually the business owner has attempted to do the bookkeeping themselves or they’ve hired an unqualified bookkeeper.

No matter how it happened, it’s good to realize  the current state of your accounting and get it on track.

Messy books are a huge frustration.  You can’t make informed business decisions, you’re running a business blind, and you’re always caught off-guard come tax time.  Just because you know how much is in your bank account, doesn’t mean you know if you’re making money or not!

It’s costing you money, time, and anxiety!

Aligned CPA serves many accounting clients in the professional services industry.  For our clients, we setup a web-based system so the client and our office have access, categorize income and expenses into correct accounts, reconcile bank accounts, and many other functions.  Using our firm allows you to have peace of mind that your bookkeeping is getting done, correctly and timely, and at a fraction of the cost of an in-house bookkeeper.

If you’re unsure if your bookkeeping is a mess or not, look at these items:

  1. It’s been over 3 months since your bank accounts have been reconciled

  2. You can’t run an accurate Profit & Loss statement

  3. Your Accounts Receivable aging report does not accurately show what your customers owe you

  4. Your Balance Sheet doesn’t show the correct balance of your bank loans

  5. You don’t know what your break even point is

  6. You have no idea how much you had in Sales this year compared to this point last year

  7. You don’t know how much you owe your vendors

  8. You haven’t issued 1099s to vendors (did you know there’s a $530 IRS penalty for not complying with this!)

After going through these items you should have a good idea if your bookkeeping is a mess or not.

I know bookkeeping isn’t exciting to you, but it is important.

It can help you make better decisions and be prepared. You can monitor where your money is going and make changes that add up.

What’s next?

We can help.  We can meet with you, gather documents, setup a system, and get your records cleaned up.  We’ll guide you along the process and make it as easy as possible. Contact our office today for a consultation.


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing accounting and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

Measure What Matters

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With technology at your fingertips you can measure almost anything. It’s what you do with that information that really matters.

If you are a service business, measuring and monitoring your Key Performance Indicators (KPIs) will help you determine if you will hit your business goals.  By tracking KPIs you know well ahead of time if you're on target. 

You may ask, why not just look at my Profit & Loss statement? Financials report historical information.  You can't go back and fix what went wrong.  By tracking KPIs you can make changes well before you would see the results on an outdated Profit & Loss. Think of it as your KPIs produce the results on the financials.

So what metrics really matter? We recommend viewing the below metrics on a weekly or monthly basis:

Utilization = Billable hours / Available work hours

Realization = Actual Billed hours / Billable hours

Collection = Actual Collected revenue / Actual Billed hours

Here’s what each of these KPIs can tell you.

UTILIZATION

Overview:  Number of hours marked as billable compared to the number of hours you were available to bill

How are you spending your workday?  Are you, or your staff, bogged down with administrative tasks?  You can tell based on your utilization rate. If you’re constantly getting to the end of each workday realizing you’ve gotten very little client work done, you have a utilization issue.

Constraint:  Time Management

How to Fix:  Look at your days and determine what you can automate, delegate, or outsource.  Automate your meaningless tasks that technology can handle, delegate what isn’t making you money, and outsource what needs a higher level of attention.

In our firm we automate the prospect phase.  When a prospect is interested in working with us they complete an online form. Based on the form responses, it generates an email with a link requesting the prospect book on our online calendar.  It also sends their info into our CRM and workflow system. ALL of that comes from the bots inside my computer!

REALIZATION

Overview:  Billable hours worked that are actually billed to a client

When you are under billing there can be several causes.  Generally, you are spending too much time on a client matter.  Is this because you didn’t know the topic well, you have constant distractions (hello email), or there are other interruptions in your office?

Constraint:  Efficiency and Time Management

How to Fix:  Use time blocking in your day.  With time blocking you block time off on your calendar to work on specific tasks.  You don’t let others interrupt you and shut off all distractions (put your cell phone away!).  

Realization rates are usually higher in firms who have niched in a specific area.  Niching allows you to become the expert in the matter, which in turn means you can finish each client matter faster. You no longer have to allocate time to learn the specifics of different industries or areas.

Law firms that are niched in an area of law make more money and are seen as an expert over attorneys in general practice.

COLLECTION

Overview:  Of what you actually billed on an invoice, what was actually collected

This is always the worst!  You’ve done the work, billed the client, and now crickets.  The wait is on.

Constraint:  Processes

How to Fix:  Look at your collection process.  Should you consider collecting a higher retainer?  Progress billing? Or is there a way you can require the client to pay when the service is delivered.  

If your firm has a low collection rate, consider reviewing your client selection process.  Not all clients are created equal! You would be better off with less clients than with lots of clients that don’t pay.

After understanding these KPIs you can see how you are leaving money on the table and how even a little improvement in each area could have a huge effect on your bottom line.  I’d recommend looking at these metrics over a rolling 12 months. See if you can pinpoint the missing link. It could be a process that needs to be implemented, better time management, new technology, or extra training for your staff.

 

Aligned CPA helps service professionals run better businesses. We’d love a chance to talk and see if we would be a good fit for your firm.  Contact us for a complimentary consultation today.


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing accounting and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

When to Outsource Your Accounting

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As a business owner your time is valuable.  You’re constantly pulled in multiple directions and so many things need your attention. Guess what gets pushed to the back? Accounting.

I see this a lot in business.  The owner thinks “I’ll get to that later”, but there always seems to be something more important.  Some immediate fire to put out. After a while it becomes a bigger project than you have time for so you continue to ignore it until it’s tax time or your banker needs a financial statement.

On the other hand, there are many businesses that have in-house bookkeepers.  This can be a great option if the business owner understands the accounting function.  They need to understand the information that is presented to them and be able to interpret the numbers.  Otherwise, you could be paying a bookkeeper who is doing a sloppy job. Unfortunately, that’s a common occurrence.

So whether you’re putting off doing your accounting, or if you have an in-house bookkeeper, it’s important to remember that you need to be able to measure your goals.  How do you do that without having financials to back it up? The answer… you don’t.

Another factor to keep in mind is your time.  As an owner, you need to focus on the best use of your time. That is not accounting!  You should focus on leading your team, prospecting, closing deals, and coming up with new ideas.  Those are the activities that are going to take your business to the next level.

So, when should you outsource your accounting to a CPA firm?

  • You don’t have qualified staff to handle it in-house

  • You can’t afford a full-time employee

  • You need to understand what your financials really mean

  • You’re always caught off guard when tax time rolls around

Outsourcing is a great option if you find yourself agreeing with the above statements.  You can have a high-quality result at the fraction of the cost of doing it yourself (Time is money!).

When using our firm for outsourced accounting, you get:

  • Financial information at your fingertips with a web-based system

  • Peace of mind that you have an expert supporting you and your goals

  • Reduced overhead and cost savings

  • Improved accounting processes

There really isn’t a bad time to think about outsourcing your accounting department. It’s a great option for start-ups, mid-size, and large businesses.

To learn more about how Aligned CPA can help your business, contact us for a complimentary consultation.  We’ll look at your current accounting processes and show you how we can streamline the process, save you money, and give you a better result.


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing coaching and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

How to Grow a Business Worth Selling

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Getting the most for your business starts now

Service-Based Business Strategies

Many small business owners see their business as a retirement plan. If that’s the case for you then you need to start thinking about how to get the most when selling your business.

These are ideas and strategies that need to be in place long before you’re ready to sell. A buyer will want to see at least the last 3 years of financials.

Here's a few metrics a buyer will pay attention to when buying a service business.

#1 Cash to Owners

A buyer will want to know the cash flow to owners. Does the business have the profits and cash to pay the owners on an ongoing basis? The higher the better. 

In a service business, the owner should see 50% of profits hit their bank account.

So if you've been hoarding cash, now is the time to start paying yourself more.

There are several tactics you can use to hit this target:

  • Raise Prices
  • Get Better at Pricing New Clients
  • Have Processes in Place for Efficiency
  • Hire and Manage Great Staff

#2 Owners Time Spent in the Business

Buyers typically are not looking to buy a job, they're looking for an investment. Time spent in the business shows whether the business can run without you or not. Each year you should try and reduce the time spent working in the business.

The key is having processes and systems in place so the business can run without you. Hello Vacations!

You'll want to have an Operations Manual that teaches staff exactly how to do their work, communicate with clients, and operate the way you want. (If you don't have this in place, we seriously need to talk!  Click here.)

#3 Quality of Staff

Buyers aren't looking to buy your business, fire your staff, and start all over. They want a turn-key operation. Having "A" team members can increase your sales price. 

Now is the time to invest in your staff. If they are lacking in areas spend the money on getting more technical training. If they need to be better leaders, spend time coaching them. Don't assume these things will happen on their own!

#4 A Winning Culture

Culture can be the driver of growth, but it can also be the driver of death.

Do you have high employee turnover?  If yes, there could be a couple of things going on. Either you're a crappy interviewer or you have a crappy culture. The good news is both are easy to fix!

To have a great culture you need to have Core Values in place that state what you, your business, and your team members believe in. If you all have the same values you're more likely to have a winning team and winning culture. These Values will not only help you hire team members, they'll also help you hire or fire clients. Use them as a guiding light.

 

It's Not Too Late

It's not too late to implement changes in your business. Now is the best time as any to start building your high-quality service business.

If you have no idea where to start I'd love to help you! Click here for a consultation. We'll discuss your present situation and how Aligned CPA can help you reach your goals.


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing coaching and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

WHAT IS BUSINESS COACHING?

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are you ready for a Business Coach?

A Business Coach...

Instructs, Motivates, Inspires, Brings people together, Analyzes and Provides feedback.  

Business coaching involves one on one discussions and problem solving. Coaching sessions are setup to determine

1)Where you are in your business, 
2)Where you want to be, and
3) How to get there.

A coach will help you setup a roadmap, goals, tasks, and hold you accountable so you can reach those goals. One-off coaching sessions may be needed if you have a specific problem you want to solve or discuss.

You may need a business coach to:

  • Prioritize actions in your business
  • Improve your customer's experience
  • Discuss business strategies (pricing, hiring, customers...)
  • Determine your strengths and weaknesses
  • Work through a specific problem
  • Generate ideas and brainstorm
  • Learn and educate yourself about your accounting
  • Discuss and improve the value you offer your customers
  • Have a sounding board or second opinion

As you can see, coaching is aimed at helping you work through issues, grow your business, create new ideas, and become more innovative.

It's very easy to get consumed in the day to day operations. Having a coach helps you to think bigger and improve your results.  Are you ready to do that?  If so, we'd love to help!


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing coaching and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

The Easiest Way to Start a Strategic Plan

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Don’t Get Overwhelmed.

Overwhelm is the #1 reason I’ve seen businesses not have a strategic plan.  They don’t know where to start, so they don’t start at all.

I agree creating your first strategic plan can be a lot of work... but it doesn’t need to be.  Here’s how I get client’s headed in the right direction without getting too complex.

 

Create an Issues List.

Take 30 minutes of uninterrupted time, or 30 minutes with key team members, and make a list of all the things that aren’t going how you want right now.

Don’t worry if it’s too big or too small of an issue.  Write it down.

If you’re having a problem coming up with issues, you’re either kidding yourself, or you need to be more in tune with your team and your customers.  Think about:

  • Complaints you’ve had from customers

  • Reasons a prospect didn’t hire you

  • Why your employees aren’t getting their jobs done

  • How your employees could do a better job

  • Reasons employees have quit in the past

All of these areas will give you issues you need to work on.

 

Prioritize the Issues.

Take all of the issues from step one and prioritize them in the order that would give you the biggest impact.

What will move your business forward the most?  It doesn’t have to be in order of what will make you the most money right now, but think about what would reduce major headaches and bottlenecks.

You’ll likely find that as an issue is solved, it solves other issues on your list.

 

Focus on Your Top 3 for 90 Days

Now that you know your major issues, and you have them prioritized, focus on the top 3.

Meet with your team again and make an action plan for each issue.  Detail out what tasks need to get done to solve the issue. And be sure to attach a deadline date and someone who is responsible for each task.  Accountability is key!

Now take all of your tasks and map them over the next 90 days.  What needs to happen when and by who?

Over the next 90 days only work on these 3 issues.  Don’t get sidetracked and start working on a new project, new idea, or other shiny object.  Being strategic means saying no.

Focus.

Focusing on very few issues is what will give you traction and make the needle move in your business.

If you need help, or want to fully jump into strategic planning, we’d love to help you and be a resource to your business.

 


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing coaching and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease. 

Book Review- High Performance Habits

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The Secrets Behind Improving Every Aspect of Your Life

High Performance Habits by Brendon Burchard

How would your life change if you were consistently at your best? That’s one of the questions that Brendon answers in this book. And it is fascinating!

The answers come from studying millions of students and looking at the habits that set high achievers apart from others.

It goes beyond working hard and making smart decisions.  It’s more about the habits that you need to have over the long-term, not only to be successful, but to also have a fulfilling life.

The three areas the book dives into are:

  • Why do some people succeed more quickly, and have long-term success?

  • Of successful people, why are some more happy while others are miserable?

  • What motivates people to reach for higher levels of success, and what habits and training help them improve?

Change Your Habits, Change Your Life.

The habits needed to not only be successful in one area of your life, but all areas, and to maintain that success over the long-term include:

  1. Seek Clarity.  Get clear on what you want out of life.  Focus on these things and don’t get distracted by other shiny objects.

  2. Generate Energy.  This goes much deeper than being active and eating healthy (which are a big part too).  You need to learn to maintain your energy levels throughout the day as you go from meeting to calls to emails to family time.  These areas are called transitions. Mastering transitions will help you generate more energy!

    Brendon has great tips and exercises in the book on how to do this.

  3. Raise Necessity.  Always knowing ‘why’ you’re doing something, why it’s important, and the difference you are making.  When your why is at the forefront you are more likely to perform at a higher level.

  4. Increase Productivity.  Know the outputs that matter.  This isn’t about being busy. It’s about focusing on the outcomes that will make a difference and move the needle forward.   

  5. Develop Influence.  To be a high performer you must have an influence on others.  Inspire your team to be more productive, lead others, and teach them to think smarter.

  6. Demonstrate Courage.  In face of risk or hardships, high performers speak up for themselves, understand the struggle, and don’t get brought down by it.  They work through fear by serving others.

Some of these habits seem like common sense, and others are a mere thought, but when you combine all six, and you master them, you’ll see amazing results.


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing coaching and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease.