Our participants:
Terrell Turner (TT), Liz McCausland (LM), Amanda Moore (AM), Julie Bays (JB), Jim Calloway (JC)
TT: When it comes to setting up a Trust Account, you want to make sure that you’re using a bank that allows you to have features like check cashing, online payments and transfers, cash deposits, etc. You want to make sure that you and your clients can easily make deposits without being burdened with additional tasks; that may be the result of the bank not having the proper infrastructure to make this a smooth process. To manage your trust account successfully, here are a few things to keep in mind:
LM: I have never had a debit card issued for my Trust Account. The risk is too great for some kind of compromise or fraud.
Also- there are some great programs that work with your banks to help with the reconciling of your trust account. Trust Books and Nota come to mind. Nota is a free member benefit to Florida Bar Members.
JB: Before setting up and managing a trust account, check the rules and regulations of your local or jurisdictional authority. They have resources to help you follow the legal and ethical standards. Record every transaction involving client funds, with details of deposits and disbursements. Reconcile your trust account with your bank statements monthly. Train anyone who handles trust funds on the rules and best practices. Conduct regular audits to ensure compliance. Using software specifically designed to handle legal trust accounts makes this process easier.
JC: First, check in with your bar association or other regulatory agency to determine whether there are specific procedures or reports that are required and to take advantage of any resources that are available to you.
At any moment, a law firm be able to quickly determine the exact amount of each client’s funds in the trust account. That total amount, combined with any funds of the firm on deposit to cover bank charges under Model Rule 1.15(b), should precisely equal the trust account balance. If the sums do not equal, immediate corrective action is required.
There are many ways to accurately maintain this information. Physical ledgers can be used. Every deposit or withdrawal must be noted both in the client’s individual ledger and the account balance. If a check is written for a client’s expenses, then both the client’s ledger balance and the account balance should reflect that deduction. Trust accounting software can be used to assist with proper trust accounting. Whether subscribing to that software makes sense for your firm likely depends on the number of trust account transactions per month and the bookkeeping skills you have within the office.
TT: A firm should consider the predictability of the cases that it usually works on to avoid setting the firm up for unnecessary financial losses. Typically, flat fee structures are good for cases where the process is predictable (i.e., the stages of the case and scope of work follow a consistent pattern), and hourly are better when you are involved with a case type that has an unpredictable or potentially volatile pattern. If you are going to use a mixed approach, strongly consider limiting the flat fee portion of the case to the most predictable portions of the case where you can limit the scope (i.e, clearly define the level of service that is covered by the flat fee) and any work performed outside of that scope would transition to a non-flat fee approach.
LM: Clearly define what is and what is not included in the flat fee and make sure to go over this with your client before moving forward with representation. My flat fee contracts have a chart of what is not covered and how much those individual services cost.
JB: When selecting a pricing strategy, it’s important to recognize that today’s clients are essentially consumers and should be treated as such. There is a growing trend in the legal industry towards flat fees or fixed pricing models, and for good reason. Clients appreciate the predictability and transparency that these pricing structures offer, as it allows them to budget for legal expenses without worrying about unexpected costs. Flat fees also align the interests of the client and the lawyer by focusing on the value of the service provided rather than the time spent delivering it. I’m a big believer in the value of tools and resources that can help law firms develop effective pricing strategies. One such resource is the Pricing Toolkit from "A Different Practice."
JC: Technology advances save time for office workers. As law firms incorporate tools like automated document assembly and artificial intelligence, there will be a reduction in the time that lawyers spend, and if the sole method of billing is tracking hours, there will be an impact on income. Even if lawyers want to continue billing by the hour, some tasks may become so automated that task-based provisions for fixed fees may become a part of the standard hourly engagement.
TT: The first thing you have to understand is the type of accountant you are working with. There are two key types of accountants 1) Bookkeeping and financial statement focused, 2) Tax reporting and taxation focused. If you are working with option 1, Financial Statement Focused, you should expect them to complete the necessary work to provide you with regular financial statements that can help you understand how money came in and out of your business. If you’re working with option 2, Taxation Focused, you should expect your accountant to be aware of the tax filings, tax deadlines, tax risks, and opportunities that can affect you and your firm. If you’re working with two different accountants, you should expect there to be communication between the two parties to ensure that you’re receiving coordinated advice and insight so you can make the best financial decisions that impact you and your firm.
AM: A bookkeeper's role in a small law firm is key to ensuring compliance with legal and financial regulations and maintaining the firm’s overall financial health. An in-house or contracted bookkeeper should be able to provide timely, accurate record-keeping and report production, including:
Although the above expectations may be met flawlessly by an accountant, remember it is the responsibility of management to provide regular monitoring and oversight of financial activities.
TT: Finding the right finance support, whether that’s a bookkeeper (for financial reporting), accountant (tax focused), or CFO (strategic guidance and planning), can start with you doing a search. You can go to www.americanbar.org and, in the search box, type in your keyword (bookkeeper or accountant or CFO) and click on one of the recent results that pop up in the list. You can read/listen to the content in the result and ask yourself, "Does this person's information help make the subject matter easier for me to understand"? This is a very important question to ask because you want to work with someone who knows how to relay financial information in a way that makes sense to you. If you find relevant value in that person's content, click on their contact information and reach out to them, asking if they have a recommendation for a good bookkeeper, accounting, or CFO. Using this approach is a faster way for you to start with a potential list of people who have already been vetted by others who are familiar with finance topics for law firms.
TT: If you are trying to understand your law firm, here are a few KPIs that you should review: 1) Revenue, 2) Expenses, 3) Cash In vs Out, 4) Cash on Hand. Revenue can be broken down in different ways, e.g., Revenue by case type (helps you understand what types of cases clients are paying for) or Revenue by a staff member (which staff members are generating revenue for the firm). Expenses can be separated into ‘Mandatory expenses’ (things that you have to pay for in order to provide legal services to your clients), ‘Other Operating’ expenses (things that aren't essential to providing legal services but they are involved with operating the firm). Understanding your expenses this way will give you a hint about where you can make adjustments if the firm is not profitable or if you need to reprioritize your spending. Looking at your Cash In vs Out is important because you want to make sure you have more cash coming into the firm than cash going out. Even if you have more total cash coming in vs going out you also want to consider the timing, so you are not paying everyone else way before you actually collect from your clients (this could create uncomfortable cashflow timing issues). Cash on hand is critical because you want to make sure you have sufficient cash to cover the things that you have to make payments for when those payments are due. Understanding cash on hand may help you decide when to adjust the timing of payments so you don't put the firm in a negative cash-on-hand position.
TT: When it comes to protecting your firm against financial fraud, you can:
Every law firm should decide, ‘what financial payment sources do we normally use’? If a third party asks you to send money through a financial application or process that you are not familiar with, you can refer back to your law firm's approved financial payment list to avoid potential fraud issues. Prior to releasing any payments to a third party, the law firm should verify who the recipient is. For example, if you’re transferring a large sum of money, first send a small test amount and then ask the intended recipient to verify the exact test amount that you sent them before you send the rest of the money (some cash transfer methods do not allow you to reverse the transaction if you later realize that you sent the funds to the wrong person). On a regular basis, you should review the list of vendors that your firm has made payments to and investigate any vendor names that you are not familiar with. Many firms have been victims of fraud because a fake vendor was created in their system and no one thought to check for this.
AM: For a firm to protect itself against fraud, it should stay involved in its own accounting activities. Let your accountant know you are keeping an eye on the books. Even if you’re not able to review bookkeeping reports regularly, request them. The following are easy-to-produce reports that can be helpful in detecting fraud:
Regular review of these reports can provide an understanding of a firm’s financial activities and help identify any inconsistencies or irregularities that could signal fraudulent activity.
JB: As a former prosecutor of financial fraud, I cannot overstate the importance of trust and verification in this area. Conducting background checks on employees who have access to financial accounts and implementing clear internal controls can help mitigate the risk of fraud. Segregating financial duties within the firm is another effective strategy. By ensuring that no single individual has control over all aspects of financial transactions, you reduce the risk of fraudulent activity. Two-factor authentication (2FA) is a simple yet powerful tool that adds an extra layer of security to your online banking and financial systems. It’s a measure that every firm should implement.
In addition, investing in secure financial software and ensuring that your systems are protected against unauthorized access can further safeguard your firm’s finances.
JC: Many common fraud schemes involved persuading staff to wire out funds whether based on interaction with a scammer or some fake invoices submitted. Make sure they appreciate that scammers often try to impersonate the responsible lawyer. At least twice a year the firm should provide education to staff on the various phishing scams and other types of scams. Law firm staff tend to operate quickly, just like the lawyers they work for. Your training should focus on slowing down when there is the possibility of fraud.
