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September/October 2020


A Checklist for a Quick Financial Audit

Peter Roberts

This issue of Law Practice magazine is your annual reminder to pay renewed attention to the financial side of your practice. But rest easy; we are not attempting to turn you into a CPA!

Software Overview

There are three “flavors” of financial software you must use. The first is financial (aka accounting) software. Think profit and loss statements and balance sheets and budgets and tax returns. Next is time and billing (aka management) software. Think billable hours and work in process and realization. Lastly is trust (aka IOLTA) accounting software. Think client ledgers and advance fee deposits and paying costs and earned fees from client balances. Some practices may not need a trust account. For further information, visit the LP Legal Technology Resource Center. For a broad treatment of technology in a law office, purchase the 2020 Solo and Small Firm Legal Technology Guide. Also, go to to learn about more software options.

Use the checklist on the next page for a quick financial audit to review your financial and business practices.

A Fond Farewell

I hope your 2020 is bouncing back from the COVID-19 pandemic. Keep this issue of Law Practice magazine handy for reference and consider checking the archives for prior September/October finance editions. Share useful articles with your bookkeeper.

This is my last column for Law Practice magazine. I wish you well and I thank the Law Practice Division for allowing me to share my thoughts on law firm finance over the years. 






Do you have time-keeping procedures for travel time or recording in x-minute increments?

Your office procedures manual is the place to document the details of using your financial and management software.




Are discounts (write-downs) shown on the bill?

Have the client see your largesse.




Do you offer flat fees?

I view flat fees as a very interesting way to earn a fair fee based on the value of the document or service instead of only the time spent, which may have been very little time. This is where you can price solely based on your years of training and expertise, not your time.




Do you offer “unbundling” of your services?

This means parsing your services into different parts with each part having its own fee as the matter progresses. This can be a win-win with a moderate-means client base. You may or may not be attorney of record. Check your local rules first.




Do you have an annual gross fees budget?

First, let’s look at “capacity.” Opposite your name put the number of very likely billable hours times a billing rate to equal an annual amount using 100 percent realization. Yes, 100 percent. That resulting number is capacity. The actual number is collections. Might collections be as good as 90 percent of capacity? Way to go! Second, let’s look at the number 2,080. This is

the total hours in a year using a 40-hour week times 52 weeks. (And not working weekends, ha! ha!) We need to reduce the 2,080 by nonbillable activities such as clients not paying/wheel spinning, CLEs, vacations, sickness, administering the firm, business development, pro bono publico efforts, etc. I give you 1,080 hours (more than half the year) for these activities. If your hourly rate is $285, your gross fees collected are $285,000. Not bad.




Are credit cards accepted for payment of your fees, costs and advance fee deposits?

As is often said in corporate circles, “cash is king.” A payment beats an account receivable any day of the week even when you “take a small haircut” paying the processing fee.




Do you keep checkbooks locked away unless in use?

I am aware of a situation when a staff person left the desk to make coffee or use the restroom and a stranger entered the premises, saw the exposed checkbooks, grabbed them and left. Or they may only remove several checks and leave the

checkbooks in place.




Does the bookkeeper ever take a vacation?

Why do I ask? Bookkeepers who do not take vacations, who resent close supervision and who are defensive may be embezzlers.




Do you know the name of your bank branch or operations manager?

This is good business practice. If you are a solo practitioner, ask them:

a.   In the event of my death, will you respond to my personal representative for undelayed access to my trust account so my clients can quickly find other counsel?

b.   In the event of my disability, will you respond similarly to my assisting attorney (not personal representative) with whom I have a written agreement to oversee my practice during my disability?




Does the firm have a line of credit?

The first quarter of each year can be a challenge as cash flow may not be adequate to meet payroll. A line of credit is a proper form of financial management. It builds a relationship with your banker (a possible source of clients) and is usually necessary in a contingent-fee practice.




Are client trust funds kept in an IOLTA or individual account separate from funds in the operating account?

You may want to use different financial institutions and different colored checks to help distinguish the accounts. Does your state bar association offer a trust account guidelines booklet?




Are bills sent out on a scheduled basis?

Sometimes a “successful” practice prevents you from getting the bills out in a timely manner. Two months late? Three months late? Being too busy can inflict cash flow pain. Your bookkeeper should be assisting the billing process as much as





Are the accounts receivable evaluated and followed up on regularly?

Extending credit to strangers in adversarial matters is not a “best business practice.”




Is the IOLTA account reconciled each month so that the client ledgers balance to the journal and the journal balances to

the bank statement?

I hope so!




Are payments and credits posted to clients’ files in a timely manner?

Depending on your firm’s practice areas, size and number of clients, your bookkeeper may be processing many of these transactions each day whether by cash, credit card or electronic funds transfer. Amounts paid that do not match existing

balances put an added time burden on your bookkeeper to research the reasons why.



Peter Roberts


Peter Roberts is a private practice management consultant for lawyers. He was the former practice management advisor in the Law Office Management Assistance Program of the Washington State Bar Association for 13 years. He is active in the ABA Law Practice Division and served as the 2019-20 chair of the Law Firm Finance Committee. [email protected]

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