1.
Accounting
for Law Firms
in 2020
A Clio Webinar

2.
Joshua Lenon
LAWYER IN RESIDENCE AT CLIO
Attorney admitted in New
York
@JoshuaLenon

3.
T.C. Whittaker, CPA
● PwC Law Firm
Solution Leader
● Founded 5
privately held
businesses
● www.linkedin.com/
in/tcwhittaker

4.
Agenda
• Money matters in law firms
• Essentials of small business accounting
• Handle trust accounting in an ethical manner
• Create a system for capturing expenses, overhead, and
income
• Use technology to improve your firm’s financial
performance
• Clio features
• Questions (10 minutes)

5.
Money Matters in
Law Firms
Law firms financial metrics are key to success

6.
Revenue Growth is the Target

7.
Getting control of your law firm’s
finances is the key to success.
How do you do that while being a
lawyer and not a bookkeeper?

8.
insightsofficer.com
The Basics of Law
Firm Accounting and
Bookkeeping!

9.
Agenda
01 The Basics
02 The Right Shape
03 Setting and Achieving Goals
04 Funding your Business
05 Trust Accounting
06 KPIs

10.
The Basics
How are financial statements typically structured?
Columns, Rows & Comparative Periods
Why do we use financial statements?
They tell the story of your firm. The accuracy to which they
tell your story relies solely on your record keeping.
Income/Revenue
Cash collected for services rendered
Expenses
Cash spent for business operations
Profit and Loss
Financial statement representing the cash
earned minus the cash spent during a set
period of time
Balance Sheet
Financial statement representing the
Assets, Liabilities and Equity of a company
as of a specific date
Ledger
Detail listing of individual transactions
IOLTA
Interest on Lawyer Trust Accounts
IMPORTANT TERMS

11.
The Right Shape
What is a chart of accounts?
A list of categories to record business transactions. It’s the
underlying detail of your financial statements.
Basic elements of a chart of accounts
The Account Number, Name and Amount. They include the
details you want to track.
Why is the right chart of accounts so vital?
It will determine how you ultimately see the results of your
business in your financial statements. It’s critical for proper
trust accounting.
KEY QUESTIONS

12.
Did I meet my revenue targets?
Am I achieving my expected profit margin?
Net Income / Income = Profit Margin
Profit Margin represents what percentage of sales has turned into profits?
How many cents of profit did I generate for each dollar of sales?
Setting and Achieving Goals
QUESTIONS TO GET YOU THERE
Do I have money to reinvest or distribute?
Net Income
Can I afford to do X, Y or Z?
NEXT STEPS WHEN YOU ARE MEETING TOP OF P&L GOALS

13.
Assets = Liabilities + Equity
Assets
Future Benefits
Cash, Accounts Receivable,
Prepaid Expenses
Liabilities
Future Obligations
Unpaid expenses, loans, unpaid
payroll taxes
Equity
Difference Between
Benefits and Obligations
Equity = capital contributions
(distributions) + Retained
Earnings (Losses)
Capital Contribution (Equity)
Money put in the business by the owners
Retained Earnings (Equity)
Money reinvested in the business from operations
Debt
Money borrowed from a third party to be paid
back with interest. Often times for SMBs, debt
come with a personal guarantee.
Funding Your Business
KEY TERMS
YOUR BALANCE SHEET
Equity
You are giving away future
earnings
Debt
You take on risk of default
and pay interest
THE BIG DIFFERENCES

14.
Trust Accounting - Essentials
Quite simple: keep money that isn’t yours in a separate account
Governed State by State & very few people know the bar rules
Extremely high risk area to your firm
TRUST ACCOUNTING THE MOST CRITICAL PART OF BOOKKEEPING
Get a separate bank account (Required by most states)
Leverage technology - STOP doing this on the back of a napkin
Always record the transaction the day money clears the bank
Perform a monthly 3 way reconciliation
Bank statement, trust account, & detailed client subledger
THE DO’S
Mix trust funds with any other part of the business
Borrow Money from the trust account
Record Trust Funds Received as Income
Trust is Income after you do the work :)
Watch out for credit card fees! (LawPay)
THE DON’TS

15.
Trust Accounting - Get Paid More
You do the work, you bill the client
Law firms have a cash flow “matching” problem
Your invoice gets short paid, or you don't get paid at all!
In accounting terms this is called credit risk or collection risk
THERE IS BIG RISK IN EVERY SERVICE INDUSTRY
By taking funds up front from your clients, the cash is sitting safely in a
bank account waiting on you to do the work
Requires more work on the front end but can really improve your cash flow
Filters out the clients that will short pay you or stiff you
TRUST CAN HELP MITIGATE THAT RISK
Put in the proper internal processes
Get a separate bank account
Start small - ask for one new client to pay half your estimated bill up front
IF YOU ARE NOT DOING THIS, SET IT UP RIGHT AND RUN A COUPLE TESTS

16.
How to Calculate and Use KPIs
How profitable is my firm?
Profit Margin = Net Income / Revenue
How much is my time actually worth?
Average Rate Billed Per Hour = Total Hours Billed for the Month / Total Dollars
Billed
Am I getting paid for the work I did?
Collection Percentage = Total Cash Collected / Total Dollars Billed
How much do I spend per timekeeper to run my firm?
Operating Expense per Timekeeper = total operating expense / # of timekeepers
Am I hitting my firm’s targets? (what are my targets?)
Should I hire or shift work?
Utilization = total billable hours / total working hours
Are my team and I working on profitable clients?
Profitability by Client = fees generated by client - estimated cost per timekeeper per hour worked
SIMPLE RATIOS
ADVANCED RATIOS

17.
Is tech the answer?
It might be...

18.
The Details
DELIVERABLES
DAILY
Transactions coded
Cash application performed
WEEKLY
Expense mapping updated
Cash reconciliations performed
Trust reconciliations performed
AR aging summary delivered
Revenue by attorney delivered
MONTHLY
Financial statements delivered
KPI DASHBOARDS
Profitability trend analysis
Profit margin by practice type & client
Expense trend analysis
Expense breakdown by category + detail
Billing trend analysis
Billing details by practice type & employee
AR aging detail & summary
Matter trend analysis
Utilization by staff class

19.
We’d love to help!
T.C. Whittaker
thomas.c.whittaker@pwc.com
insightsofficer.com

20.
Clio accounting features
Keep track of your finances in Clio

21.
Firm Dashboards

22.
Enter Time Quickly

23.
Track Non-Billable Time

24.
Track Expenses

25.
Trust Accounting in Clio

26.
Trust Reporting

27.
Matter Level Trust Insight

28.
Bulk Trust Management

29.
Request Trust Deposits Online

30.
Questions

31.
We’d love to help!
T.C. Whittaker
thomas.c.whittaker@pwc.com
insightsofficer.com

32.
Thank You
Joshua Lenon
joshua@clio.com
@JoshuaLenon
Linkedin.com/in/joshualenon
1-888-858-2546