However, in today's economy, cash flow, or the lack thereof, is now a crucial element for many small practices. Many of today's small to mid-sized law firms are feeling the squeeze of limited cash flow, extremely old receivables and run-a-way expenses. The worst part, and the scariest, is that the Partners in these firms have no idea how much or the age of the receivables! Also, unknown is where all the money is being spent, or which attorney is making money or what type of case is bringing in the mos t profit.
Attorney's have traditionally shunned accounting systems, leaving the 'dirty' work to bookkeepers and to their CPA's who come in once a month or less often. In today's computerized environment, law firms, as well as other professional organizations (Acc ountants, Engineers, Architects, etc.) can have effective Time and Billing (including Accounts Receivable), Accounts Payable (disbursements and general operating expenses) and General Ledger (income and expense statements and balance sheet) reporting and data collection.
Currently available software for single user systems start at about $150 for the Time & Billing system only, to $300 for Time & Billing, A/P and G/L on up to approximately $2500. Networkable solutions run from $500 for Time & Billing only to over $3500. With each system, regardless of cost, you get some standard types of information and reports, such as; custom layouts for bills and statements, client summaries, aged receivables, cash journals, time usage, work - in - process. With the more expensive systems you can get profitability reports, fee analysis, integration with Accounts Payable for disbursement recording, etc.
Many Law Firms already have computers for word processing functions. These same computers can be utilized to a) automate the time slip function by networking the computers or b) have one computer dedicated towards the accounting function. Networking co uld also improve productivity between Firm members by allowing free and unencumbered flow of information, without having multiple people get involved in the location and acquisition of such information. Examples could be sample motions used in specific c ases. By having a repository of sample cases on a central computer, each attorney could copy the motion and substitute the appropriate pertinent information. This could save large amounts of unbillable time, and time is money.
Implementing an integrated accounting system will enable the Firm to reduce Receivables and write offs of bad debt. If by using the Aged Accounts Receivable reports you are able to reduce your receivables by 15%, and stop work on clients who don't pay t heir bills, you could markably increase profitability and cash flow. If the Firm was able to determine which types of cases (divorce, criminal, real estate, etc) make the least amount of money, the Firm then could eliminate accepting these cases.
Other benefits of this type of computer system would be a cost/benefit analysis on the activities of each billing member of the Firm. Comparisons could be made between the cost for the employee against billings, cost of services provided versus reimburs ement of services, billable vs non-billable hours. Budget analysis could be used to determine if the Firm estimations made on flat fees are profitable or not.
By examining your disbursements and expenses, you could now initiate cost cutting methods to reduce your overhead and increase the bottom line. The only way you can find out what types and how much is being spent is by utilizing an Accounts Payable syst em.
These types of activities would not be possible in a small firm with a limited accounting staff unless a computerized accounting system was used. These comparisons show the current health of the Firm, along with providing insight into the financial impl ications of the Firms activities and employees.
In short, Law Firms today must begin to operate their business's like businesses. A business person needs information and a computerized integrated accounting system geared for a professional business can give you the information you need. The savvy bu siness person cuts costs, reduces overhead, maximizes utilization of resources by cutting receivables and increasing sales (billed time) leaving a nice healthy profit. And remember, the profit is split among the Partners.
Wayne Spivak is with SBA * Consulting of Bellmre, which specializes in the installation and implementation of Integrated Accounting systems.