Perhaps you’ve heard the phrase, “don’t step over a dollar to pick up a penny.” It refers to the idea of doing all you can to save money, yet costing yourself more in the end. Unfortunately, this happens with many law firms regarding accounting and bookkeeping. This can come crashing down in a hurry at tax time. According to a Forbes.com article, “the IRS has long found lawyers to be a fruitful source of revenue and information.” It goes on to detail a program that the IRS has called Project Esquire, which specifically focuses on prosecuting members of the bar. The IRS did release guidelines for auditing members of the bar and highlighted some specific areas to work on. The article goes on to say that the guidelines, “direct agents to look for good internal accounting, billing software, and to pay special attention to the adjustment log that reconciles the output of the time and billing system to the appropriate accounts in the general ledger. Lawyer trust accounts are also vital sources of information.”1
In order to alleviate this concern many attorneys seek to do the bookkeeping themselves, hire an in-house bookkeeper, or hire an outside company. Let’s take a look at the true cost of each option and see if there is a better solution.
Do It Yourself
This option is usually done by smaller firms that have 1-4 attorneys in the firm. The common thought is that you can just tabulate everything into QuickBooks for the low price of $83 for the Advanced level. Seems like a great deal, right? Let’s see what the true cost is. In order for this option to work, you’ll need to spend about 5 hours per week inputting expenses and data. If you figure the average hourly attorney rate of $250, you are spending $1250 per week on yourself to complete those tasks. That equates to $5,000 per month that you are spending on your hourly rate to complete the tasks needed for the $83 program to do your bookkeeping.
Hire An In-House Bookkeeper
This option is pretty straightforward. You simply hire an in-house bookkeeper. According to Zip Recruiter 2 , the average yearly rate is $4,878 per month. The advantage is that your person is in-house and will work 40 hours per week to reconcile accounts and make sure that billing is correct. The downside is that you’ll then have to pay benefits and payroll taxes on this bookkeeper. Additionally, it takes time to find the right person. Again, take into account the fact that you’ll need to conduct a search and conduct interviews to find the right person. So, if we are being conservative with a 10 hour estimate to conduct a search and interviews, then you’re really looking at an initial cost of $2,500 plus the extra employee salary.
Hire an Outside Bookkeeping Company
There are options that exist to hire outside companies to complete bookkeeping work for your firm. The average cost on that can depend on the size of your firm, but most of the time, you’ll be looking at $1000-$2000 per month. If you hire the right people, then that will also include the cost to prepare your taxes.
Is There A Better Way?
The aforementioned options all reference the idea of only bookkeeping and some accounting aspects. Bookkeeping and accounting just scratch the surface of the technology and performance analytics tools available to law firms in 2020 and beyond. What if there were a company that could provide bookkeeping and accounting and leverage those basics into your practice management system and then provide key data-driven insights that would show you how your law firm could be more successful?
There is. It’s called firmTRAK. We realize that you went to law school to become a lawyer, not to reconcile accounts and billing information. Additionally, we work seamlessly with PracticePanther, Clio, Xero, Quickbooks, firmTRAK KPI Reporting, and ActionStep to automate your business services, plus give you the ability to harness your practice management data to unlock the true potential of your law firm with instant, ready-made key performance indicator (KPI) reporting. This will allow your firm to base decisions on accurate, real-time business reporting and easily maximize your strengths and make corrections in areas that need improvement.
Maximize Your Time and Your Money
Remember the saying of stepping over a dollar to pick up the penny? With firmTRAK, you can make more dollars for pennies compared to the other methods listed above. Instead of just bookkeeping, using firmTRAK will allow you to completely transform your law firm’s finances and performance starting at $499 per month for small firms. firmTRAK is an automated accounting, bookkeeping, payroll, and reporting solution built to streamline your business and unlock your growth.
We’d love to prove our value to you with a quick 15-minute phone call. Please fill out our questionnaire and we will call you to set up a time. In this case, 15 minutes could truly save you more than just money. We can help save your firm time, money, and get you back peace of mind and a focus on what you went to law school to do – help people.
Upcoming Series
Three way trust reconciliation – we know that you didn’t go to law school to become a banker or money manager, but the fact is that if you agree to hold money in trust, you take on a non-delegable, personal fiduciary responsibility to account for the funds as long as they remain in your possession. The legal and ethical obligation to account for those funds is yours alone, regardless of your lack of financial knowledge or how busy your practice is. Failure to live up to this duty can result in personal monetary liability, fee disputes, loss of clients, and public discipline.
Wouldn’t it be helpful to have a system to help take this off your hands with guaranteed compliance? firmTRAK is your solution to this state-mandated responsibility. Keep an eye out for our upcoming three-part series on trust reconciliation.
Sources:
1Wood, Robert W. “Dear Lawyers: Get Ready For IRS Audits!” Forbes, Forbes Magazine, 13 Sept. 2011, www.forbes.com/sites/robertwood/2011/08/26/dear-lawyers-get-ready-for-irs-audits/#51a2268e4747.
2“Q: How Much Do Work From Home Bookkeeper Jobs Pay per Month in 2020?” ZipRecruiter, www.ziprecruiter.com/Salaries/How-Much-Does-a-Work-From-Home-Bookkeeper-Make-a-Month.
