With more Tennessee attorneys – especially new lawyers – deciding to “hang out” their own shingle and begin a solo or small firm practice, the TBA has developed the Solo in a Box Toolkit. Each issue of E-DICT this year will spotlight one of the toolkit’s 12 sections. This month we look at finance and budgeting issues.

In the Law Office Finance and Budgeting section, the Solo in a Box Toolkit addresses four major issues: establishing a monthly cash flow plan, billing for services, accepting credit cards, and navigating the ethical issues associated with trust accounts.

Establishing a Monthly Cash Flow Plan – A solo practice can be “feast or famine” so lawyers working this setting must be diligent to prepare for slow months. A monthly cash flow plan can be helpful in showing projected revenues and expected expenses for each month of the year. The plan should be reviewed and updated at least once a month so steps can be taken to ensure there is enough revenue to cover expenses. Solo practioners also are encouraged to create a “rainy day” fund sufficient to cover one month’s expenses; put aside funds monthly for large expenses, such as malpractice insurance, that need to be paid in a lump sum; and put aside funds monthly to cover quarterly tax payments.

Billing for Services – There are various methods that can be used to determine fees, with hourly billing, flat fees and contingency fees being the most common. While certain fee arrangements lend themselves to certain areas of the law, and some cannot be used with regard to certain matters, there is one overriding concept set forth in the Rules of Professional Conduct: a lawyer may not make an agreement for, charge or collect an unreasonable fee. The rule outlines 10 factors that should be consider in determining the reasonableness of a fee. The toolkit summarizes these factors and provides guidance on three fee-related issues that should always be addressed in a retainer agreement: scope of representation, whether the fee is refundable and how expenses will be handled. The toolkit provides an example of how to structure a fee agreement for each of the most commonly used methods identified above and includes tips for keeping track of time spent on a case.

Accepting Credit Cards – There are numerous products on the market that allow small businesses to accept credit card payments. Lawyers should be sure to consider equipment costs, fees and long-term contracts, but more importantly, should assess whether the service has a mechanism for dealing with earned and unearned payments to ensure client funds held in reserve are treated properly. TBA members get special discounts with LAWPAY, which offers a processing program specifically for lawyers that does not require equipment, does not charge an annual fee and protects client funds.

Ethical Issues – One of the quickest ways to commit an ethical violation is to improperly maintain a trust account. Client funds held in an IOLTA account are subject to additional rules and limitations. Under no circumstances should lawyers deposit money that belongs to a client into a personal or operating account. The Board of Professional Responsibility has issued a step-by-step guide to proper trust accounting. The toolkit links to the document and provides its own recommendations for handling receipts, making disbursements and reconciling accounts. With regard to other financial and accounting matters, lawyers should be vigilant to keep receipts for any expenses claimed on tax returns as attorneys are audited at a higher than average rate. The toolkit also provides guidance on dealing with clients that do not pay their bills.

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