Trust accounting is no joke, and knowing what your financial statements and key firm metrics are telling you can greatly improve your bottom-line and boost your business. Kaitlin and Adrian will help you figure out how to think like accountants so you can rest assured that you’re making the best decisions for your firm.

1. THINKING'LIKE'AN'ACCOUNTANT
Financial'Statement'Fundamentals'for'Law'Firms
Adrian'Pape,'Clio'
Kaitlin'Graves,'Clio

2. SUBJECT: ACCOUNTING
You came!!! Thanks.

3. Who are we?
Adrian Pape - Senior Accountant
Kaitlin Graves - Accounts Payable Specialist
Repeat...we work at Clio.

4. Who are you?
1. Attorneys
2. Accountants
3. Attorneys doing accounting

5. Attorneys
What do I do with these financial statements?

6. Accountants
Should I be offering more advice?

7. Attorney-Accountants
1. We’re impressed.
2. Are you tired yet?

8. Today’s Topics
• 7 Trust Accounting Survival Skills
• Financial Statements Demystified
• The Meaning of Metrics

9. Caveat...
Always remember to consult with an accounting professional and your Bar
Association for best practices when making financial decisions for your firm.

10. ...ACCOUNTING...
Learn by doing?
Take a course??
Google???
Let’s start with the statements.

11. Graves & Pape, Attorneys at Law

12. 7 TRUST ACCOUNTING
SURVIVAL SKILLS
They’re in the conference app!

13. 1. KEEP CLIENT BALANCES
SEPARATE
They can be pooled, but you need to maintain individual records

14. 2. YOU CAN’T SPEND WHAT YOU
DON’T HAVE
Don’t use client funds to pay firm expenses

15. 3. THERE’S NO SUCH THING AS A
NEGATIVE BALANCE
Before you incur further expenses on an account,
you need to request additional advances

16. 4. TIMING IS EVERYTHING
Prepare for delays between advances and expenses,
especially when dealing with checks

17. 5. YOU CAN’T PLAY THE GAME
UNLESS YOU KNOW THE SCORE
Client trust fund balances need to be monitored on a regular basis

18. 6. THE FINAL SCORE
IS ALWAYS ZERO
When the case is closed, all funds are either earned or returned

19. 7. ALWAYS MAINTAIN
AN AUDIT TRAIL
You need to have the appropriate documentation
in place to support the trust balance

20. 7 Trust Accounting Survival Skills
1. Keep Client Balances Separate
2. You Can’t Spend What You Don’t Have
3. There’s No Such Thing as a Negative Balance
4. Timing is Everything
5. You Can’t Play the Game Unless You Know the Score
6. The Final Score is Always Zero
7. Always Maintain an Audit Trail
Check your Clio Cloud Conference App!

21. FINANCIAL STATEMENTS
DEMYSTIFIED

22. LET’S SIMPLIFY THEM FIRST...

23. • Revenue
• Expenses
• Assets
• Liabilities
• Equity
Five Types of Accounts

24. What is Revenue?

25. What are Expenses?
Rent, marketing, salaries, client costs, etc.

26. What is an Asset?
A beautiful vacation house on the beach!

27. What is a Liability?
The mortgage on that house!

28. What is Equity?
Partner contributions and draws + net profit
(revenue – expenses)

29. ACCOUNTING = BALANCE

30. Journal Entries
All journal entries must be in balance and are made of up of a group
of Debits and Credits.
DR – Cash $100
DR – Accounts Receivable $900
CR – Revenue $1,000

31. Trial Balance
All debits and credits in a double-entry accounting system.
Always in balance.

32. Always in balance!
Assets
Liabilities
Equity
(Rev-Exp)
The Golden Rule - Expanded
= +

33. • Balance Sheet
• Income Statement (or Profit and Loss)
• Cash Flow Statement
• Owners Equity
Financial Statements

34. Summarizes a company’s assets,
liabilities shareholders’ equity at
a specific point in time.
Balance Sheets

35. Income Statement
Measure of the financial performance
of a company over a period of time.

36. The Financial Statements
• Balance Sheet
• Income Statement (or Profit and Loss)
• Cash Flow Statement
• Owners Equity

37. The Financial Statements
• Balance Sheet
• Income Statement (or Profit and Loss)
• Cash Flow Statement
• Owners Equity

38. Graves & Pape, Attorneys at Law
Employment Law – We’re Experts!

39. WHAT DO THESE FINANCIAL
STATEMENTS TELL US ABOUT
OUR BUSINESS?

40. THE MEANING OF METRICS
How the numbers can help...

41. REVENUE

42. CONSIDER TRACKING BY PRACTICE AREA

43. REVENUE
VS.
ACCOUNTS RECEIVABLE

44. High level of Accounts Receivable
1) Issues with collection?
2) Issues with how we bill?

45. ALTERNATIVE BILLING

46. CLIENT
BILLING =
FIRM
= PROFITVALUE

47. Types of Fees
Hourly
• easy to track
Capped
• displays efficiency
Blended
• depends on type of work

48. Types of Fees
Performance Based Fees
• qualitative or quantitative
Contingency - NEW!
• win / win
• must be reasonable AND competitive

49. Types of Fees
Flat Fees
• no cost uncertainty
Value
• assess the outcomes
Time
• limits risk of unforeseen items

50. Types of Fees
• Hourly
• Performance-Based
• Flat Fees
! Hybrid!

51. BUT HOW DO I CHOOSE?
Check your margins

52. Immigration Example (we’re experts!)

53. Charging $150 / hr
Average of 40 hours/case billed ($6000)
5 customers per year
Not hitting targets…
...need more customers!
Immigration Example (we’re experts!)

54. Needs to cover…
admin
salary
profit
billing rate
Billing Rates - Simplified

55. Needs to cover…
admin
salary
profit
billing rate
Billing Rates - Simplified
$50 (x2000 = $100,000 per year)

56. Needs to cover…
1/3 admin
1/3 salary
1/3 profit
3/3 billing rate
Billing Rates - Simplified
$50
$50
$50
$150

57. Needs to cover…
1/3 admin
1/3 salary
1/3 profit
3/3 billing rate
Billing Rates - Simplified
$50
$50
$50
$150
cost
cost
not a cost
$100 cost

58. Types of costs
Fixed costs
• cannot be adjusted
Variable costs
• change with volume / activity

59. Fixed costs
$750 court fees
$ 50 filing fee
$800 total fixed costs
Immigration Example

60. Variable costs
$100 photocopying
45 hours x $100/hourcost = $4500
$4600 total variable costs
Immigration Example

61. Fixed costs = $800
Variable costs = $4600
Total expenses = $5400
Revenue = ($150/hrx 40 hrs) $6000
$6000 - $5400 = $600 margin
Immigration Example - Margin

62. $150/hour…
...is that still appropriate?
...is that still competitive?
…is the client happy?
Immigration Example

63. Variable costs – effeciencies!
...using Clio!
...mobile app!
...document automation!
…intake forms!
Immigration Example

64. 45 hours
only 41 hours since streamlining
$100 photocopying
41 hours x $100/hourcost = $4100
$4200 total variable costs (saved $400!)
Immigration Example

65. Fixed costs = $800
Variable costs = $4200
Total expenses = $5000
Revenue = ($150/hrx 40 hrs) $6000
$6000 - $5400 = $1000 margin
Immigration Example - Updated Margin

66. $1000 margin...
...change to flat rate?
...more clients?
…hourly = 5 clients/yr $5,000
…flat rate = 8 clients/yr? $8,000
…drop and be more competitive?
Immigration Example

67. CLIENT
BILLING =
FIRM
= PROFITVALUE
• competitive rate
• low risk
• economies of scale
• balance of clients

68. BACK TO OUR HIGH ACCOUNTS
RECEIVABLE BALANCE...

69. FAST COLLECTION

70. How long do we wait for money?
Accounts Receivable Turnover =
Total Revenue
Average Accounts Receivable Balance

71. How long do we wait for money?
Accounts Receivable Turnover =
Total Revenue
Average [(Closing A/R) , (Opening A/R)]

72. How long do we wait for money?
Accounts Receivable Turnover =
18,000
Average [(Closing A/R) , (Opening A/R)]

73. How long do we wait for money?
Accounts Receivable Turnover =
18,000
Average [(50,000) , (Opening A/R)]

74. How long do we wait for money?
Accounts Receivable Turnover =
18,000
Average [(50,000) , (58,000)]

75. How long do we wait for money?
Accounts Receivable Turnover =
18,000
54,000

76. How long do we wait for money?
Accounts Receivable Turnover =
18,000/54,000 = 0.333
30 days / 0.333 = 90 days
NOT GOOD.

77. Collect Faster Using Clio!
• Quickbills ! one-stop billing!
• Clio Payments ! linked to emails!
• Payment Profiles ! incentivize!
• Payment Plans ! add to calendar!
• Trust Payments ! remember 7 T&Ts!
• Fundbox ! $25K in 1 day!

78. SMART EXPENSES

79. Period Comparison
• Month over month
• Quarter over quarter
• Year over Year
• Look for trends in the data or anything unusual jumping out

80. Expense Cashflow
Accounts Payable Ratio =
Total Invoiced Expenses
Average Accounts Payable Balance

81. Expense Cashflow
Accounts Payable Ratio =
Total Invoiced Expenses
Average [(Closing A/P) , (Opening A/P)]

82. Expense Cashflow
Accounts Payable Ratio =
4,575
Average [(Closing A/P) , (Opening A/P)]

83. Expense Cashflow
Accounts Payable Ratio =
4,575
Average [(1,500) , (Opening A/P)]

84. Expense Cashflow
Accounts Payable Ratio =
4,575
Average [(1,500) , (2,500)]

85. Expense Cashflow
Accounts Payable Ratio =
4,575
2,000

86. Expense Cashflow
Accounts Payable Turnover =
$4,575 / 2,000 = 2.29
30 days / 2.29 = 13 days
NOT GOOD.

87. WHAT ABOUT COST OF SALES?

88. Budgeting ! NEW Matter Budgets!
• Create budget
• Track hours and expenses
• Review progress
• Make changes

89. Recovering Client Expenses
• Expense Recovery

90. Recovering Client Expenses
• Expense Recovery
• Flat Rate
- General & Administrative Fee

91. Recovering Client Expenses
• Expense Recovery
• Flat Rate
- General & Administrative Fee
• One-time Charge

92. NOW THAT WE HAVE MONEY…

93. HOW WELL ARE WE SPENDING
OUR TIME?

94. REALIZATION RATE

95. Revenue = Realization Rate
2 lawyers
$150 per hour
160 hours per month
75% efficiency(marketing, meetings)
$36,000 target revenue
vs $18,000 = 50%

96. What does this mean?
1. Wrong billing structure?
2. Not enough clients?
3. Not spending our time wisely?

97. Time to Hire?
10 hours spent billing
$150 per hour
$1500 lost revenue
$25/hour bookkeeper
8 hours saved (@$150 - $25)
“$1000” additional profit/margin per week

98. Cost of an Employee
$1000 per week…
…laptop
…training
…benefits
…still probably time to start searching…
So much to do, so little time!

99. Graves & Pape, Attorneys at Law

100. Graves & Pape, Attorneys at Law
• 7 Trust Accounting Survival Skills – balanced!
• Financial Statements – demysitifed
• The Meaning of Metrics
• Gross Margin – adjusted billing rates
• A/R & A/P Turnover – improved cash flow
• Expense Recovery – higher margins, improved workflow
• Realization Rate – time to hire!

101. THINKING LIKE AN ACCOUNTANT
Financial Fundamentals for the Small Law Firm

102. Thinking Like an Account Take-aways
• Trust Accounting 7 Survival Skills
• Alternative Billing Whitepaper
• Financial Statements Demystified
• Increasing Income
• Managing Cashflows
• Decreasing Expenses

103. QUESTIONS?

104. Thank You.