ACCOUNTING

Law office accounting processes should be automated. The following is a brief description of procedures that should be followed relative to law firm accounting.

Bank Accounts

Every practice should utilize an operating account for the firm’s income and expense transactions, a trust account, and possibly a payroll and client disbursement account. Checks and deposit slips for these accounts should bear the name of the type of account they are; i.e., "Operating Account", "Trust Account", "Payroll Account", etc.

Operating Account

• Reconcile the operating account monthly
• Deposit Procedures

• photocopy checks received prior to deposit
• list/post receipts daily
• deposit receipts daily

• Check Procedures

• Use stubbed, two-part or double-stubbed checks
• File copy/stub of check with invoice

• Maintain a daily/weekly bank account balance

• Post deposits and withdrawals from the accounts daily and calculate a daily balance.

Cash Flow
It is important to know the amount of cash on hand at all times and the cash requirements for the next week and/or month. Cash flow management requires discipline and information.

Discipline

• Establish a policy that some % of monthly revenues will be held back (not spent or paid out in draws) until one month’s operating expenses are covered by the hold back.
• Establish a monthly draw or salary for firm owners. Excess profits can be distributed on a quarterly basis. Never distribute to the owners an amount in excess of the net income the firm has generated to date.
• Withhold monthly for large expenditures that are paid in a lump sum during the year; i.e., malpractice insurance, bonuses, depreciation, etc.
• Never borrow to pay owner draws.
• Pay down any line of credit to -0- every 12 months.
• Bill monthly and manage the firm’s accounts receivables

Information

• Review the firm’s cash requirements weekly (invoices that need to be paid, payroll cash requirements, etc.) to determine if there will be sufficient funds to cover these expenses.
• Ascertain the fee payments expected to be made during the coming week.
• Ascertain whether there will be a sufficient funds to meet the week’s cash requirements.

Financial Statements
Financial statements should be prepared monthly.

Budgeting
Budgeting is an essential tool for the management of the firm’s financial resources. There are a number of resources available at the TBA TNBAR Management Services Resource Library that can assist the lawyer in developing a firm budget.