Every New Year offers a clean slate to do things better in the future. For solo and small firm attorneys, this is especially true when it comes to managing the firm’s year-end accounting process. According to Tyler Chapman, financial analyst and business valuation professional for LexisNexis, simply putting a few efficiencies in place throughout the year can help attorneys get a better handle on the year-end financial process and position them to succeed in the upcoming tax season and the entire year.
“The Government doesn’t care if your clients are slow to pay their bills,” cautions Mr. Chapman. “Be prepared for that squeeze, rather than just at the end of the year.”
One way to get better prepared, Mr. Chapman suggests, is for attorneys to submit their invoices to clients in a timely way so they can secure payment on those invoices as early as possible. He also recommends attorneys make time to bill their clients, not just in advance of the holidays, but also ahead of any big trials if and when possible. The goal is to anticipate any upcoming legal expenses and pay vendors before they become due to the firm.
Although it sounds counterintuitive, this is especially true, says Mr. Chapman, if the firm is having a banner year. Better yet, he recommends consulting with a tax accountant to better anticipate upcoming burdens.
“The tax accountant might say ‘you had a great year,’ which means the partners will owe additional taxes, so don’t be surprised,” says Mr. Chapman.
This comes down to proper preparation and planning throughout the year. Here are 6 tips he offers to help attorneys get off to a good start, whether in the midst of closing the books on the previous year, or setting themselves up for success in 2017:
- Review Work-in-Progress Reports. Regularly review work-in-progress (WIP) reports to look for anything that is old or stale to determine whether it should be billed or written off. The last thing any attorney wants is to have clients scratching their heads about curious charges on their legal bills.
- Interim-Bill Clients As Needed. Most clients take time off around the holidays, so their payments to your firm are likely to get delayed. To prepare, the firm should bill clients on an interim basis before the holidays. The same applies to preparing in advance for lengthy trials in the coming year.
- Clean Up Stale Checks. After six months void any old checks and reach out to vendors to see if any of those checks should be reissued, voided or turned over as unclaimed property.
- Bill All Billable Work. Don’t feel bad about billing clients. The reality is that most clients appreciate being invoiced on a timely basis, before their bills get out of hand. You’ll need to account for all client invoices already sent and enter all billable time provided to clients during the workflow process. There are several affordable legal-specific financial management programs such as Juris and PCLaw, both from LexisNexis, that help attorneys manage their accounting process to ensure that no billable time is left on the table. Simply by sending bills on a timely basis, many law firms can raise their profitability.
- Communicate With Clients about Unpaid Invoices. In anticipation of closing the fiscal year, see if any invoices still remain unpaid and check with clients to either have those invoices paid immediately or written off. It’s important to note, if any client hard costs are written off, the firm can reduce its taxable income by reflecting the loss of income on the firm’s annual profit and loss (P&L) report.
- Conduct Quarterly In-Depth Accounting Reviews. When working with accountants, don’t just rely on them to prepare the firm’s taxes. Ask them to conduct more in-depth reviews on a quarterly basis to ensure the firm’s finances are well organized and properly adjusted. By having them make adjustments quarterly instead of only once a year, it is much easier to find and solve any errors along the way. Spotting something as simple as an invoice keyed in incorrectly at the outset is a good way to ward off end-of-year headaches.
The key to financial management success, says Mr. Chapman, is being disciplined throughout the year with the firm’s finances. This includes accounting for all billable work provided to clients, submitting invoices and receiving payment for the work in a timely way. In the end, both attorneys and their clients will benefit from it.
If you enjoyed this post and would like even more detailed information about planning for the upcoming fiscal year, read through this LexisNexis Year-End Resources guide.