Tasty Solutions for Timekeeping, Billing, and Accounting

Vol. 31 No. 4

By

Ann M. Guinn (253/946-1896), principal of G&P Associates in Kent, Washington, is a practice management consultant to solo and small law firms and the author of Minding Your Own Business: The Solo and Small Firm Lawyer’s Guide to a Profitable Practice (ABA, 2010).

You’re at your local Dairy Queen, enjoying a little treat in celebration of the nice deposit you just made to your firm’s general checking account. All those lovely checks really made your day. But, before you swallow another spoonful of your Oreo Blizzard, let’s take a look back at the steps it took to bring in those checks and determine whether or not your timekeeping and billing procedures are working to your full advantage.

Capturing Your Time

Contemporaneous timekeeping is a weak spot for many attorneys; however, it’s the only way to ensure that: (1) you accurately capture every minute of potentially billable time and (2) your bills are fair to your clients. If you wait to the end of the day to record your time, you will lose 10 percent to 15 percent of your potential billable time because you simply can’t remember how much time you spent on each task or activity. Wait to the next day, and you lose about 25 percent of your time. At week’s end, you’ll have an approximate 50 percent loss of billable time for you and a questionable guesstimate for your clients.

Consider the story of Helene, a lawyer who is a client with my practice management consultancy. One of her biggest problems was getting her time recorded regularly. I had an appointment with her at 2:00 pm one day, and as we headed into her office, Helene’s assistant informed her that a client was on the phone. Helene turned to me and said, “Do you mind if I take this call?” I told her I’d wait in the lobby. On a table next to my chair was a phone, and I could see that the light for her line was on. And it was on, and it was on, and . . . you get the picture. When Helene finally came for me, I asked her if she had written down the phone call. “Oh, right,” she said, and grabbed a piece of paper. She wrote out the date, the client’s name, the topic of discussion, then hesitated when it came to the time. She said, “Let’s see, that was 20 minutes,” and wrote that on the paper.

I said, “Now, you see how easy that was? You bill $300 an hour, so you just captured $100 worth of time. At the end of the month, you’ll be able to bill that.” She responded, “You’re right. I don’t know why this is so hard for me.” I said, “The only problem is that you were on the phone for one hour and 40 minutes, so you just wrote off $400.” She was incredulous until she looked at her clock and saw the truth of the matter. You may not be as far off on your guesses as was Helene, but the point remains—we rarely remember time accurately.

Capturing Time for Non-Hourly Work

While no one enjoys the timekeeping chore, it’s a necessity for every law firm—and not just hourly billed attorneys. For those using flat fees, it’s important to know what you actually earn per hour. Your fees may need adjusting from time to time. The value of tracking your time for contingent fee attorneys is the same. You need to know if the cases you take on are paying you what you need to earn per hour, or do you need to get better at case and client selection. With contingent work, there are also instances where an attorney must justify the time spent on a case in order to receive attorney fees at the conclusion of the matter. Best to have those hours already recorded than to be in the position of trying to figure it all out years after the fact. It’s also helpful for all timekeepers to see where their time is really going. Are they making the best use of their time, or are they handling tasks that someone else would be able to handle, and at a lesser cost?

Timekeeping Tools

There are some excellent software programs designed for law firms. LexisNexis’ Firm Manager (firmmanager.com), Clio (goclio.com), Rocket Matter (rocketmatter.com), PC Law (lexisnexis.com/pclaw), Bill4Time (bill4time.com), RTG (rtgsoftware.com), and Chrometa (chrometa.com) are but a few of the programs available to help you capture your time. Although software certainly makes this task more efficient and less time consuming, it doesn’t matter if you scribble your time entries down on a legal pad, enter them straight into your billing program, or dictate them into your smartphone—use whatever tool is most convenient for you. The key to your success here will be “contemporaneous timekeeping,” not any particular recording method.

Sometimes it’s hard to capture your time away from the office. Recently, I consulted with an attorney who had this very problem. She frequently took client calls while visiting her horse, but she didn’t record the time. I suggested several different ways to capture this lost time, including texting or e-mailing her time to herself, or making a voice recording of her time entry on her smartphone. Although she makes great use of technology in her practice, those ideas didn’t work for her. What did work was a little 79-cent spiral-bound notebook that she kept on the car seat next to her, where she recorded her out-of-office time. Surprise, surprise—her billings went up significantly when she started to capture this previously lost time.

You can’t bill for time you didn’t capture, so do yourself a favor and make timekeeping a priority all day long.

Effective Billing Practices

When you bill and how you bill can be just as important as what you bill. Send out bills so they are received a few days before traditional paydays. Split your client list in half and bill about 15 days apart, or make four lists and bill one list each week. This will help even out your cash flow and reduce the amount of time spent in one big chunk preparing and sending bills.

Use detailed billing descriptions and avoid using abbreviations in your bills. What may be crystal clear to you may be clear as mud to some of your clients. They deserve bills that they can understand and that demonstrate the value of your services to them. Spend the extra time to give them a billing statement that works for both of you.

The Discounting Dilemma

The point of billing is sometimes a sort of crisis point for attorneys. This is where they decide whether to go for it and bill for all time worked or discount their fees with write-offs or write-downs. Some attorneys discount in the hopes that the lowered bill will prompt quicker payment. Others discount for a cash or check payment that enables them to avoid paying credit card processing fees.

So, let’s look at this business of discounting and see if it makes sense. My veterinarian requires payment at time of service—no discount for cash/check. Same with my dentist, Macy’s, the grocery store, accountant, doctor, car mechanic, dry cleaner, insurance company, and so on. In fact, the only place I can think of that would give me a discount for a cash payment is my friendly gas station.

Now, let’s say you bill your client $1,500 but offer a 10 percent discount (in this case, $150) for a cash payment within ten days. Your effective rate (what you actually earn for your work) has just dropped, but your expenses and compensation needs have remained the same. A typical credit card fee would have been, perhaps, 1.5 percent to 5 percent of the transaction amount ($75 or less). That wasn’t just your money you gave away with the discount—it also belonged to your partner and your family as well.

Not convinced? Then, consider this: If your gross margin is at 50 percent and you discount your fees by 10 percent, you have to increase revenues by 25 percent to maintain the same gross profit. If you discount by 15 percent, that jumps to 43 percent. The trade-off for a discount is that you have to work more hours to maintain status quo. That’s time away from family, friends, hobbies, volunteer work, and so on. Is it worth it?

Do your clients ask for a discount? If not, you may be discounting because you are undervaluing your legal services. Stop that! If your clients aren’t complaining, then it would seem they hold a higher opinion of your work than you do.

There are many important things you need to do when it comes to preparing your bills—I respectfully suggest that discounting is not one of them.

Accounting for Your Money

Arguably, one of the best things you can do for your solo or small firm is this: Outsource your bookkeeping function to someone who is a trained bookkeeper. You’ll waste a lot of money and (potentially billable) time—and run the risk of making some serious errors—if you try to handle this task yourself.

It’s particularly important to outsource payroll, as mistakes can be expensive. Case in point: My client Jerry insisted that his paralegal handle the firm’s books, including payroll, despite the fact that the paralegal repeatedly told him that she didn’t feel competent to handle these tasks. Jerry kept saying, “You’re smart, you’ll figure it out.” At some point, the Washington Department of Labor and Industries (L&I) conducted a surprise audit after receiving a complaint about overtime pay from a former employee. Guess what? They had been calculating overtime pay incorrectly for a long time. I had recommended an outside payroll service that would have cost $85 a month to handle payroll for his five employees, but Jerry refused to go down that path because “we can handle this in-house for free.” L&I fined him a rather significant four-figure amount and required him to pay back overtime for the past several years, both to current and past employees. Jerry now outsources payroll, along with the general bookkeeping tasks.

If you still choose to handle bookkeeping tasks in-house, here are a few tips to help you do this as efficiently and accurately as possible:

  • Ensure that the person assigned to handle the bookkeeping function has had real bookkeeping training. Invest in a good bookkeeping software program and spend the money to get live training on the program. QuickBooks (quickbooks.com) has served the legal industry well for many years, and FreshBooks (freshbooks.com) has its own share of fans among law firms. There are a number of other options, as well. Just do some research, query other attorneys regarding what they use, and make price less important than functionality, integration with your timekeeping program, and ease of use.
  • In addition to a monthly profit-and-loss statement, you need to see a productivity dashboard (see below), a weekly cash-flow report, and a weekly aged accounts report. Review regularly and take any necessary action. As an example, make a phone call as soon as an account becomes past due. If a timekeeper’s hours are down, have a chat to determine the problem. Not enough work? Lousy timekeeping habits? Time management issues? Uncertainty as to how to proceed with tasks? Whatever it is, this is the perfect time to resolve the issue before it does serious damage to your bottom line.

Productivity Dashboard

A productivity dashboard can be a valuable management tool. Include the following information for all timekeepers:

  • Billable hours budgeted
  • Billable hours worked
  • Total hours billed
  • Billing rate
  • Budget percent billed
  • Month-to-date percent billed
  • Year-to-date percent billed
  • Monthly budget revenue
  • Month-to-date billed revenue
  • Year-to-date billed revenue
  • Month-to-date difference
  • Year-to-date difference
  • Month-to-date fee receipts
  • Realization rate (percentage of fees billed that are actually collected)
  • Effective rate (multiply your hourly rate by your realization rate to determine what you really earn per hour)

Just Desserts

By keeping accurate time records and billing regularly with compete and detailed descriptions, you can maximize your revenues and bill your clients fairly. While you’re at it, make sure that your general operating account and trust account ledgers are in order and being maintained by the right person. Then you can relax about your practice and focus on serving your clients well and enjoying your work. And the rest of that Oreo Blizzard.


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