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Regardless of what type of business you have, good management is good management and the same principles apply to law firms. It isn't enough to build a better mousetrap or be a great lawyer to build a successful and efficient business or practice. Although being a good lawyer is the foundation of your firm's success, it takes much more. There are many aspects of an efficient practice—personnel and supervision issues, client issues, office systems and procedures, and technology. That is way too much to tackle here and this article will discuss those related to financial matters.

As you read this and other office management articles, there are two items to keep in mind 1) No firm is too small (even if it is just you and a computer ) to consider most of these items and 2) these are procedures and documents that should be used every day. Everyone in your office should know the procedures. Remember success is not an accident. It is a planned event.

Budgets and Cash Flow

1. All firms, no matter how small or how new, should have a written annual and monthly budget. This budget should be reviewed regularly. Ideally, you should work with an accountant familiar with law firms of your size. Your budget should include all fixed expenses for the coming year on a month to month basis.
2. You should know when all of your accounts payables are due. This will help with cash flow. At a minimum, you should have a spreadsheet listing all of your fixed expenses, amounts due, and dates due.
3. You should have a projected budget for non-fixed expenses such as education, publications, marketing/client development, and supplies. If you have been in practice for a few years you should be able to know what you spent each year on these expenses to make an estimate for the coming year. You should be able to compare months and years to determine differences, or when there may be a greater need for cash.
4. You should have a technology budget for at least the next year. If you have others in the office, get their input on what problems they may be currently having and what types of purchases may be needed within the next year. Make certain to put the cost of training into the budget.
5. Do you know how much you will need to generate in fees in order to pay your expenses and your salary? You should have a budget for projected income. Your budget for your expenses helps you know how much you need to just cover expenses. Remember to add in your own salary.
6. Do you know your projected cash flow for the next six months? You should know what will be coming in and what needs to be paid. If you have "collection agreements with clients, you should have a list of when all money is due and how much is due.

NOTE: The budgets are documents that you should have at your fingertips and should be updated continuously. You be able to know at any given time where you stand financially both on a short-term and long-term basis. You should be reviewing these documents regularly.

Billing and Collection

1. All clients should have signed written fee agreements. At a minimum, all new clients should receive a fee agreement. They should understand that little or no work will begin on a matter until the fee agreement is signed. There should be a mechanism for knowing whether or not a fee agreement has been signed before putting too much time into a matter.
2. You should have a written billing and collection policy. These policies should be given to the client at the initial interview and explained. (for samples of billing and collection procedures, please go to the MSBA Web site at http://www.msba.org. Click on Member Benefits, Law Office Management Assistance, and then Articles.)
3. There should be written policies for billing and collection . The policies should state the procedures for out of pocket expenses, replenishing the trust account for time and expenses, and payment from fees for outstanding expenses.
4. You should be using a software program for your time and billing and ideally, you should be entering time as you work on a client. At a minimum, you should be recording your time daily. If you spend eight to ten hours at the office or on work related matters, you should be able to account for all of those hours. If you lose just one hour a day at $100.00 per hour, you have lost $25,000 in a year (assuming you take a vacation for two weeks) . These are fees that are simply lost.
5. You should bill all your clients monthly and immediately at the conclusion of a matter. If you work on a client during a given month, that client should receive a bill.
6. Accounts receivable should be monitored monthly or weekly if necessary. Someone should have the responsibility of knowing which clients owe money and when payment is expected.
7. If you are waiting for payments from clients have the person in your office who is responsible for the bank deposit, give you a list of all payments each day. The list should be attached to a sheet that lists from whom you may be expecting payment
8. You should get a retainer from almost all clients. All retainer accounts should be monitored monthly to make certain that account is not being depleted. Let the client know if you plan to ask for an additional retainer if the account gets too low.
9. Consider using the retainer to apply to last invoice. If you plan to do that, make certain that you have it in your fee agreement and that you return any money that is not used as soon as the matter is completed.

Trust Accounts

1. Make certain that anyone in your office (including you) has access to the Rules of Professional Conduct and that everyone knows the rules for proper handling of trust accounts.
2. Without fail, make certain that you reconcile your office and trust accounts monthly. Most of the software programs used by solo and small firm practitioners such as Quicken or Quickbooks make this a fairly easy process. If this task is assigned to someone else in the office, make certain that you review it or have your accountant review it regularly. You are responsible for all errors.
3. Make certain that you have separate client ledgers for your trust account. This does not mean that you need separate accounts, just separate records. Make certain that they reconcile each month.
4. Deposit checks every day without fail.
5. If you have not done so, consider having operating and trust account checks in different colors.
6. When paying expenses from your trust account either to an outside vendor or for work, you have performed, send the client a statement indicating what is being paid and the account balance.
7. Consider keeping trust account and operating account checks in a locked cabinet with only a limited number of people having access to the key.
8. Develop a relationship with the bank manager at the local branch where you do your banking. This is especially helpful for solo practitioners. Most bank managers in local branches are excellent sources of information and referral sources.
9. Although most solo and small firm practitioners do not need monthly accounting services from a CPA, you should have relationship with an accountant or accounting firm. Your accountant should be able to assist you with budgeting, cash flow, and supervision of your trust accounts.
10. Some resources:
    
    " How to Improve Your Cash Flow" ABA's Law Practice Management, January/February 2001. Visit the archives at http://www.abanet.org/lpm. You can then view articles from past issues.
    
    The American Bar Association has some excellent publications on budgeting, cash flow and billing. Those publications can be found at http://www.abanet.org/lpm/catalog/topiclist.html. If you are not an ABA member, you may also purchase some of these publications for a discount from the MSBA via the Web site at www.msba.org and click on Member Benefits, and then Vendor Discounts. If you wish to review any of these publications, they are available at Bar Headquarters.
    
    The Federal Consumer Information Center in Colorado has excellent resources to assist with budgeting including worksheets. It is a consumer's almanac and can be printed (it is 32 pages) from the Web site at http://www.pueblo.gsa.gov/cic_text/money/almanac/calmanac.htm
    
    Quicken.com has a site that gives information on starting, running, and growing a business. It also has a Web site on how to write a mini-business plan.

Pat Yevics is the Director of Law Office Management Assistance at the Maryland State Bar Association, Inc. and provides assistance to lawyers on technology, law office management and starting a solo practice.