Entrepreneur Track: The Know-How to Succeed

Entrepreneur Track: The Know-How to Succeed p! Click & Jum Best in Billing Marketing Management Overview

Best Practices in Billing
by Natalie R. Kelly

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illing in a solo and small law office is a vital business task. Whether accomplished out of complete necessity and in a confusing and unorganized fashion; or ran smoothly each and every time, law office billing is an important and required part of efficiently running a law practice. Fortunately, there are some guiding practices that can be undertaken to ensure more success with the overall process. Outlined below are some of the best practices in law office billing to help.

Billing Systems
Putting first things first, if your firm continues to develop and send bills from the word processor, it is time to shift to a fully automated system specifically for law office billing. Time billing and accounting software programs of today make life a lot easier for the entire firm when it comes to tracking time and generating bills. You begin with a place to input time entries or time slips. This interface usually requires you to identify the person tracking the time (timekeeper), the matter/case for which the time is being tracked (client or matter), the amount of time or the amount of the expense being incurred on behalf of the client (time or expense), and a description of the work or expense item. At the time of billing, the program collects the appropriate slips and allows you to generate a billing statement for your clients. When you shop for a time and billing program determine what you will need in terms of accounting first. Well, first of all you should have an automated accounting system, if at all possible. With the current state of legal technology software, you can even have it both ways with the latest integrated time/billing and accounting packages. Integrated systems might be shied away from when the firm has no
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interest whatsoever in monitoring accounts. The billing-only programs do a fine job of simply managing what money and transactions occur for clients and not the overall business. So, what should you look for specifically in the automated time and billing/ accounting packages? Start with the reports here. Make sure your software offers these four basic financial reports: • • • • A/R Listing (who owes you and how long they have owed you) Productivity by Timekeeper (how much time is billed by each timekeeper) Profitability (how much is collected vs. billed) Fee Allocation (how a fee is allocated amongst multiple timekeepers)

Some specific time and billing (and time and billing and accounting) products to consider in a small law office are: Timeslips—This is one of the most popular time and billing products in the legal industry. While it does not handle general ledger accounting, it is still a top product for tracking time and generating bills. Timeslips Single Station for new users retails at $499.99. PCLaw—A leading integrated time and billing and accounting package for law firms, PCLaw from LexisNexis allows for easy time tracking and billing and general firm accounting. With a price tag that starts at $950.00, this robust program can be very useful for solo and small firms. TABS3—A long time favorite for small firms, TABS3 is a leading time and billing and general ledger accounting program for law firms. The system is part of a set of
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products that make bill generation and accounting very easy for law firms. You can get going on this very comprehensive system for $495. EasySoft TimeBill & Trust—These programs are a part of several modules for complete office management and specialty legal work solutions. The combo versions for the two modules start at $696. Other software applications that are often found in law firms for billing include Quicken, QuickBooks, QuickBooks Pro, and Sage 50 (previously known as Peachtree). These accounting solutions are not legal specific, but if properly customized, can also be very helpful in tracking time, generating invoices, and managing the bottom line for lawyers.

'Beyond the Box': Cloud-based Billing
With the advent of cloud-based practice management, a small law office will also find there are some newer technologies that can be accessed online and help with basic billing needs from wherever you work. Some systems to consider for online billing that do not come in the old boxed software format include Bill4Time, FreshBooks, Time59, and TimeSolv Legal. These cloud-based billing programs all have 30-day free trials so that you can try them before signing up for their monthly services. For solos and small firms that have minimal direct billing needs (on demand periodically), these programs may be better suited and more affordable. A general search for online billing programs will also provide a much, much longer list of products. The ones above, however, are ones that have been seen in use in smaller law offices. As with all cloud systems, make sure you adhere to this short checklist to keep your data safe and sound.
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Basic Cloud Checklist for Lawyers
1. Check local network setup (or have your IT company provide this for you) for setup and security settings 2. Configure your network Internet access to ensure the most efficient and secure levels of access 3. Understand rules and practices of your ISP (Internet Service Provider) especially regarding security and data storage and management 4. Understand the rules and general practices of your cloud vendors’ ISPs 5. Review and regularly monitor your SLA (Service-Level Agreements) with cloud vendors 6. Keep an updated list of cloud services and vendors’ main contact information with alternate means of contact where available 7. Create internal office policies and procedures for accessing and using cloud systems in your office 8. Incorporate your cloud usage into the overall firm disaster recovery plan and business continuation models 9. Perform regular (daily preferred) backups and run regular test restores of all data 10. Request a sample retrieval from the cloud vendor (ask for your data back in the way you’d get it in the event you discontinued the service or there were other occasions where you need your data back)

Billing Best Practices: The List
With your office set up for automated time billing, keep the following best practices in mind: 1. Always use written Fee Agreements—NEVER enter into representation without a written agreement for how you will be paid. This practice is required to protect the interests of both you and the client in your attorney-client
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relationship. Make sure that your agreement is clear, easy to read and has language that indicates the scope of services and what is expected from the firm in providing the services and the client in making payment for services. 2. Accept credit cards—Expand your means of getting paid by allowing credit card or debit card payments for fees. Even online PayPal or other payments service accounts can be a possible means for making it easy for you to get paid for the work that you do. If you elect to get “blanket” consent to charge a client’s account each month for easier billing, be sure that you have made it clear that these charges are coming and send a timely courtesy reminder. You could also elect to have a new authorization signed each month to prevent any major billing mishaps related to their card payments. 3. Give clients copy of billing statement when they get the fee agreement—Show clients exactly what your bills look like and where they can find the exact amounts to pay. You can include a copy with the Fee Agreement as the client reviews it. 4. Provide flexible billing terms when you can—Set up payment arrangements that are acceptable for you and the firm, if you can. Do not become a bank, instead of a law firm. When discussing billing terms, ask the client if there is a time each month that works best for them. With mortgage and other large payments likely coming at the beginning of the month, it may be important to have an option for clients to pay their bills in the middle or toward the end of the month, or both! 5. Try split periods of billing to improve cash flow—Bill at different times of the month or in segmented batches of clients to help keep a steady flow of cash coming in. A to K on the 10th, and L to Z on the 20th would be an example.
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6. Collect sooner rather than later—Do not let bills go beyond 30 days, and discuss in the initial client meeting your policy for past due bills. As a part of collecting bills, indicate which clients can pay, which cannot pay, and which will not pay for whatever reason. Concert your collections efforts accordingly. 7. Use alternative billing options more frequently—Try to accommodate billing requests that are different from your normal cycles. Flexibility may help you with getting paid going forward. 8. Bill monthly—Always bill at least monthly. No excuses beyond absolutely necessary ones. This practice will help ensure a steady cash flow for the practice and also provide the client a constant update of matter activity. 9. Bill on demand—Be sure that whatever billing system you use, you can generate an up-to-the-minute bill. This practice is especially useful in practices where transactions are completed at times that differ from the dates of the normal billing cycle. As files draw near an end, have your billing staff ensure that the latest amounts have been billed or can be easily put into a pre-bill. 10. Get trust account management advice from the State Bar—Law Office Management Assistance Program services can provide detailed assistance with needed information on setting up and maintaining a client trust account. 11. Place a credit hold on funds placed in trust—Do not write checks from trust account deposits until the funds have cleared. Use your billing program to help prevent slip ups or errors in managing funds coming into your trust account. Give a period of 2 to 3 days for trust deposits to clear the bank in normal transactions. You can allow longer time holds for new clients or have
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a policy to follow your bank’s rules on funds availability for larger deposit amounts. 12. Raise fees to deal with reduced revenue—Cutting costs will only go so far. Consider raising your rates instead. You can easily adjust rates in billing programs to see if any shifts in employment occur with higher or even just slightly higher rates. Some solos distinguish themselves from competition with higher rates for their experienced assistance with legal services. 13. Have a collections plan—Have a set plan for dealing with accounts that are 30 or more days past due. Start your collection activity at the beginning of the representation by discussing the expectations you have for clients to pay their bills in a timely and responsible way. You can also introduce staff, so that clients not paying their bills are not faced with interacting with a “stranger” from your office about sensitive billing issues. 14. Use profitability reports—Track how much revenue you “realize” with these reports. Realization is the amounts you actually receive for amounts that you bill. To understand how effective your billing might be, you can review the realization to see if there are means of improving the process of billing for better payment results. 15. Use productivity reports—Track how much you are doing in terms of hours with these reports. Making sure that you are getting the work done and not “bleeding” time for non-billable or unproductive tasks can be tracked with the information you get out of these reports.

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16. Understand your billable hours goals—Set goals for yourself in terms of billable hours, and then examine how reaching or failing to reach the goal will affect you financially. The reports that are mentioned in this paper lead you to the basic information regarding your billable hours. An in-depth review, however, can be made on a regular basis to keep you on track to meet goals or to make adjustments in your billing practices to reach them. 17. Use timers and other tools for more accurate time capture—Most modern billing programs allow you to use automated timers, and many have remote tools for time capture, too. Check these tools out for capturing time as you work. Many have the option or functionality to allow for timers to pause or stop when a new timer is started. Remember, it is unethical to double bill clients for services. 18. With the advent of smart phone and tablet computing comes the use of apps for time tracking. You can investigate the use of tracking apps like these: BizTrackIt (time tracker), $39.99; nTime, $2.99; MyTimesheet, $9.99; TimeandExpense, $99.99 (free trial), TimeTracker, $8.99, TimeMe, $4.99, Blackberry. iTimesheet, $5.99, iPhone/iPad. 19. Track time as you work—You will capture more time if you track your time as you work. Try this for a week or a few days to see how it affects your productivity or profitability. Despite its “reputation,” time tracking is a key part of understanding the effectiveness of your billing process 20. Charge for consultations—An initial consultation charge can set the stage for how finances will be handled by potential clients and can help weed through “lawyer shoppers.” You can have the fee built back into representation amounts
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later. If you choose not to charge for consultations, be sure to track the time of the consultations you conduct so that you do not find yourself giving away services and money unintentionally. 21. Monitor non-billable time—Keep and review your non-billable time every two weeks. If you find that you are not billing on average 3 to 4 hours a day, you may need to analyze the non-billable time further. Non-billable time analysis can help determine if you are making the best use of time not spent billing on client matters, and even help with productivity plans for your time spent away from client files. To enhance your billing and hopefully become more profitable, you can institute the above best practice tips in your standard operating procedures. If you select to institute changes that affect clients in any major way, i.e. new rates, new practices for managing their payments, etc., be sure to advise them in writing of the changes, and seek their consent where required. Finally, do not forget to put your billing procedures in your written policies and procedures manual, and bill, bill, bill!
Natalie R. Kelly is the Director of the State Bar of Georgia’s Law Practice Management Program in Atlanta, Georgia. She writes and speaks locally and nationally on modern practice management and legal technology and provides extensive practice management and technology consulting and training to Georgia Bar members.

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Marketing Your Brains Out— Without Losing Your Mind!
by Reid F. Trautz, Esq.

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hether you are a seasoned lawyer or a newly minted one, marketing and client development are vital to your business. The flow of paying clients is the lifeblood of every firm. Unfortunately, marketing is not taught in law school, and few lawyers have marketing degrees. So many of us try different activities to develop a stream of clients, but are unhappy with the total commitment of time and the ultimate results. It doesn’t have to be that way. Let’s explore some of the concepts and secrets to efficiently and effectively create a practice full of paying clients, without losing your mind! “The only place success comes before work is in the dictionary.” -Vince Lombardi Marketing your practice is a crucial component in your success as a law practice entrepreneur. By definition, marketing is the total sum of activities to promote, sell and distribute a product or service. Many law practice entrepreneurs view marketing as just advertising and promotion when, in fact, it is much more. Marketing includes developing systems and procedures to service client needs in the marketplace, doing the legal work, charging the client and obtaining feedback about the legal services to improve those services for the next client. In this context, it is difficult to see how one can separate “marketing” from the other activities that make up the practice of law.
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According to Michael Gerber, author of the bestseller, The E-Myth Revisited, many small business owners are not entrepreneurs, just good “technicians” of their craft. Further, many “technicians” who decide to start a business believe they will be a successful entrepreneur because they are a good technician. However, many technicians—including lawyers—fail to understand they must consistently market the goods or services they offer, not just produce the product or provide the service. In other words, all law practice entrepreneurs must take time to develop new clients, analyze current client needs, and hone delivery of their services and be a good technician. Even lawyers who have a good client base must continue to market their services to existing clients and to potential clients who will eventually replace clients whose need for legal services ends or diminishes. “What you do with your billable time determines your current income, but what you do with your non-billable time determines your future.” —David Maister, True Professionalism Marketing is an investment in your practice. It is this investment of time and creativity to raise public awareness of your law practice and develop systems and procedures to better serve clients who will sustain your practice over many years. While many other businesses have sales people that drive customers to the business, there is no separate sales force in a solo practice or small law firm–-just lawyers and staff. However, lawyers and staff in solo practice and small firms can undertake numerous activities to market and develop a client base through existing clients and new clients.

The Nine Core Principals of Legal Marketing
1. Understand Your Marketing Role. Whether you are in a large or small firm, partner or associate or solo practitioner, you need to have a clear sense of your
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role in firm marketing. It today’s environment, the differences in roles is truly just a matter of degree. Understand and accept that you are running a business, and that you must balance the roles of lawyer, entrepreneur and manager. Marketing will be forever. 2. Have a Marketing Plan. Keep it simple, and make it measurable. Use it to avoid a shotgun approach, which is the biggest waste of time and money. Approach marketing strategically. Do some simple market research, then act: What do I want my practice to look like? Where do my best clients come from? What is my most profitable type of client or work? Where can I find more of the work I want? Set goals that you can measure, such as “I will write two articles in the next 60 days for two websites visited by my university clients,” or I will volunteer at two pro-bono events over the next year to put my name and practice area out for other attorneys to see. 3. Specialize. Be the best in your niche. Become known as “the expert” in your field. It could be representing racecar drivers and their crews in P visas, assisting Indian start-ups with EB-5 visas, or becoming the local “go-to” deportation lawyer. Limiting your practice to narrow areas makes your message resonate longer and louder. 4. Understand your Marketplace. Knowing who you serve (or want to serve) is the only way to target your marketing efforts. Who is your target market? What lawyer attributes are important to them? Does your marketing message fit the audience? For example, if you serve mostly low-income, less educated clientele, it may be best to target marketing at churches, free legal services providers, community organizations etc… Alternatively, for more educated clientele a more developed web site and social networking sites may be important.
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5. Differentiate your firm from others in the marketplace. This is also known as a Unique Selling Proposition. Common ways to differentiate include client service, practice area specialization, form of business model, and pricing; however, general claims and promises often are not effective. Be specific. For example, you may explain to prospective clients that while other attorneys charge less than you do, the quality of your work is such that they will be a priority in your practice. You are a “quality not quantity” attorney. 6. Focus on client needs, not on the firm attributes. When marketing to potential buyers of legal services, understand they are looking for a lawyer to solve their problem, not regal them with prior conquests. Clients are simply not interested in what you’ve done for other people but what you will do for them. Make sure your marketing messages emphasize your understanding of their legal problems, not just how good you were for someone else. Follow-up by doing more listening than talking at the initial consultation. Explain to them the purpose of the initial consultation: to get the facts from them and then devise a legal strategy and educate them about their alternatives. 7. Leverage Technology. Use common computer tools and emerging Internet services to increase the quantity and quality of your marketing efforts: Use a contact manager such as Outlook to increase the frequency of contact with people in your network and simplify the process of meaningful communication. Build a blog that people find and use as a resource. Join and participate in social networking sites. Buy a business card scanner and use it to build new relationships. If these are foreign concepts, start slowly, but start now. Make sure, especially if you are a solo lawyer or a part-time attorney, that you are available to your clients. Invest in a smart phone and be available. No one wants to hire a “part-time” attorney.
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8. Know Who You Are: Create, practice, and hone your own 5-second “sound bite” and 30-second “elevator” speech. These are your core personal marketing messages. Refine each one until they feel right. Develop variations based on different audiences/market segments. 9. Develop an operational plan to handle your new client business. Review your present ability to handle client work, and adapt or change process to handle more work. You may need new software, more administrative help, more lawyers or law clerks, and new file cabinets, just to name a few common operational changes. Having a solid process in place for client intake will make it easier for you to handle new clients and clients will appreciate a streamlined and well-thought out process. For example, have an intake sheet and questionnaire that is provided before the initial consultation and is on your letterhead and stationary. Nothing is more important than the client’s first impression.

Writing Your Marketing Plan
A marketing plan must be on paper. Period. There, I’ve said it as clear as I can. Why a plan? Because a goal without a plan is only a wish. A plan can be for a sole practitioner, an individual plan for one lawyer in a small firm, or a firm-wide plan for multiple lawyers. If your goal is to find and keep good clients, there must be a written plan. The plan does not have to be lengthy or full of marketing buzzwords, but it must contain concrete goals that are measurable. So what’s a marketing plan supposed to look like? In a nutshell, it should be a roadmap that has three to five separate roads that lead to groups of people from which some will emerge as paying clients. Clients for whom you will then do work and get paid, and who will then tell their friends, family and colleagues about your superb service. (Much more on that later.)
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But before one can design the roadmap, you have to know where you are going. That takes a bit of analysis and goal-setting. “If you don’t know where you are going, what difference does it make what path you take?” —Lewis Carroll, Alice’s Adventures in Wonderland The start of the marketing plan is really the ending point. You should have a vision about how your practice fits into your personal and professional goals and what your practice will look like when it is built. It doesn’t have to be a complete picture, but it should be more than just a few vague ideas. Even if you are currently in your own practice, ask yourself these questions to help get a more complete picture: • • • • • • • • What type of practice do I find the most personally and professionally fulfilling? What kind(s) of law do I want to practice? Is it enjoyable? Profitable? Exciting? What kinds of clients do I want? Who is my ideal client? Describe in detail. In what areas am I competent to practice with current resources and staff? What are the legal needs of the marketplace? How much do I want or need to earn? How many hours each week do I want to devote to my practice? Can I afford to take time to develop a “preferred” client base or do I need to start generating income more quickly?

Write the answers to these questions as part of your marketing plan. Then turn these thoughts into goals. (Yeah, this is the uncomfortable part; maybe a bit scary. Be assured this exercise will bring clarity to your plan.) The goals should create a picture of your practice. Be as definitive as possible. Be honest with yourself. Soar and don’t be afraid to take risks.
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The goals could be sentences such as: I will represent international collegiate athletes who desire to become professional athletes. By choice, I desire to limit my practice to clients entering professional sports leagues—preferably no more than 20 clients annually so that I can concentrate on building quality relationships. I want to work no more than 45 hours each week with the assistance of a qualified paralegal and earn $120,000. Your goal may not be exclusivity as in this example; you may have totally different goals. It may take several thoughtful interludes (or discussions with partners) to complete your picture of your practice, but it will be worth it. Now that we have an idea of where we are going, we can work on that roadmap to a practice full of loyal clients.

Developing Your Marketing Plan
Marketing studies tell us that personal referrals are the most significant source of business for the vast majority of practicing lawyers. Even publications that seek to educate legal consumers almost always instruct readers to ask friends and family for names of successful lawyers. In fact, all clients come from just five sources. Yep, just five. 1. Family and Friends: Including spouses, law school classmates, neighbors, distant relatives, friends, and other lawyers who are friends, not necessarily business associates. These people can be the best source of referrals, especially when first starting in practice. In fact, these people should make up your initial marketing address list.

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2. Clients: Present and former clients who tell their friends, relatives and colleagues about their lawyer. Clients love to brag about their lawyer, sometimes to the level of “[m]y lawyer can beat up your lawyer,” but that’s a story for another day. 3. Repeat Clients: Former clients who are satisfied with your prior services will often return for additional legal work. One road in a good marketing plan is to periodically contact these satisfied clients to remind them you are appreciative of their trust; in turn your name will be “top of mind” when someone asks them for a lawyer referral. 4. Other Professionals are a good source of referrals, including other lawyers whose clients also need your services (that they do not offer), CPAs, university foreign student advisors, financial planners, etc. Often, these professionals are asked for the name of a good attorney by their clients. Examples include business lawyers who are asked by corporate clients for the name of a good tax or family law attorney as well as financial planners whose clients ask for trust and estate lawyers. According to law practice management expert, Paul McLaughlin, this referral is an important one because it often impacts on the relationship between the professional and the client; you must provide quality services to that mutual client or risk losing the other professional as a referral source. 5. Self-referred Clients: These are clients who hear, see or read about your legal abilities and services through a vehicle other than a person; this includes the yellow pages, TV and radio advertising, informative articles and news stories in magazines, newspapers and trade journals, law firm brochures, web sites, and bar-sponsored lawyer referral programs. This type of referral also
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includes people who read about a seminar or other event you advertise and come to the event before engaging your services. Self-referred clients either do not have a trusted referral source or are dissatisfied with their present lawyer–a common theme in the legal marketplace today. Often lawyers focus on attracting only self-referred clients, but the reality is that many lawyers find success just focusing on the first four sources. And with good reason. Marketing experts agree that a consumer must usually have multiple contacts with a product or a service before they have enough confidence to take action. That usually means a consumer must hear or see information about a product or service six to eight times before being cognizant of it and willing to find out more and/or buy it. And it takes time to build this consumer trust. However, if another person whom that consumer trusts tells them to try the service, the trust in that person is transferred to the product or service, without having multiple exposures or contacts. Think Alex Trebek for Colonial Penn Life. For example, a person seeking a good tax attorney receives a positive recommendation from a close friend to call Lawyer X. The inquiring person’s trust in her friend is transferred to the recommended attorney, thereby bypassing the need for Lawyer X to have multiple contacts with that person because the trust is already there. (Although the lawyer must confirm, earn, and maintain that trust over time.) All five sources can produce good clients, but the best are client referrals–people who have actually used and paid for your services and walked away satisfied. But in order to get these valuable referrals, you must provide a positive experience for the client that meets or exceeds all expectations.
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The Top Ten Marketing Activities to Build Your Practice
1. Create a contact list, and then use it to prospect and mine for new business. • Organize information about family members, friends, school classmates, business colleagues, etc. • Decide what level of communication each contact should receive, such as a phone call, email newsletter, lunch meeting, holiday card, all of the above, etc. • Schedule time on your calendar to complete these communications 2. Produce, Present, Distribute by writing, teaching and publishing. • Create and present a seminar for your local bar, chapter or business group. Get a business card from all attendees and follow-up after with a note. Take the written materials and edit into two or three smaller articles. Submit your articles for publication to state bar magazines, business journals as well as national publications pertaining to the legal profession or those read by your target market. Send copies of the published article to clients and other interested people on your contact list. 3. Create a web site, then build traffic to it and referrals from it. • Make it education-based, client focused, and easy to find • Provide something of value for free in return for their contact information • Develop a companion blog and link to other informative sites • Consider Google AdWords and other web advertising • Have multiple domain names that point to your site • Fully understand Search Engine Optimization before buying 4. Join and participate in several organizations. • Build your reputation in your target market
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• Get your name and abilities in front of decision-makers • Consider, bar associations, business groups, community and religious organizations 5. Find new services to offer to existing clients. • Inform clients of your total package of services • Become a problem-solver to all your clients • Offer preventive services to risk-proof business clients 6. Make your offices/services convenient for your market, such as: • Office location • Web-based intake forms • Retail hours • Free, no-hassle parking • House calls 7. Join social media networks, then use them to prospect and mine new sources of clients: • Pick 2-3 networks, such as LinkedIn, Facebook, or Google+ • Don’t just do a personal profile, add a separate page for your business • Use connections to leverage introductions to potential clients • Know that 70% of Facebook users are outside the United States • Use your posts and tweets to deepen relationships 8. Test on-line directories and referral services for your target market. • Choose wisely • Understand the multiplier effect of referrals—can help or hurt your practice

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9. Publish a periodic e-newsletter. • News about your firm, information on the law in your legal niche; include a personal touch too, if appropriate • You must commit to a publishing schedule and keep it • Send to your contact list and web visitors • Consider web services such as Constant Contact to assist your efforts 10. Refer business out to others—no strings attached. • Marketing is not cheap, so don’t just turn away clients seeking your services— send them to your referral network • Don’t request reciprocity or quid pro quo unless your ethics rules allow it • Search business journals and newspapers for business opportunities to forward to others in your network

Four Bonus Ideas:
11. Create specific goals for each networking event you attend. • Decide in advance to meet X new people and obtain their business cards • Follow up with new acquaintances or your time was wasted 12. Entertain business clients, but be wary about results. • Focus any conversation on learning the client’s industry or business • Follow-up after the event is the key to success • Tickets to sporting events are tricky; don’t always go with the client 13.When other attorneys refer a client to you, keep them informed about the progress of the case and any positive developments. They will be glad to know that they made a good referral.

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14.Volunteer at legal aid clinics and through AILA. Not only are these opportunities for meeting future potential clients, but other attorneys who will refer cases to you.
Reid Trautz is a lawyer, author, and blogger on the issues of business process improvement, technology, legal ethics, and effective practice management. He is the coauthor of The Busy Lawyer’s Guide to Success: Essential Tips to Power Your Practice.

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Fundamentals of Law Practice Management
by Natalie R. Kelly

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here are more small firm lawyers in America than any other demographic. Invariably, when the law firm is looked at as a business, the lawyer is deemed a small business owner. As a business owner, many of the general business principles become applicable in the way the law practice is managed. In fact, a successful attorney is often thought to be a good business manager. Practice management involves the daily management of the law firm as it operates as a business. When attempting to define law practice management several ideas regarding business come to mind. Some of the more popular concepts for law practice management include management, finance, marketing and technology. In fact, these concepts have been adopted as the cornerstone topical categories of the American Bar Association’s Law Practice Management Section. When a lawyer fine tunes her skills in these areas they are enhancing their skills in the area of law practice management. Because the practice of law is a professional service industry it is governed much differently than regular businesses. So, the ethical standards and levels of professionalism that must be maintained by lawyers will impact each area of law practice management, too. So what are the fundamentals of law practice management? What skills are required when it comes to managing a law practice? Outlined here are some key skills and concepts that when mastered makes a lawyer a better manager of her practice, and be deemed to have a basic understanding of the fundamentals of law practice management.
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Business Skills
Many lawyers or future lawyers have no idea how to run a business. The skills that are needed to keep the doors of a practice open, at least from the business standpoint, are the same skills required of any business owner. There has to be a continuing profit from the services that are being provided after the expenses of providing the service have been paid. The simple economic equation of Revenue = Income – Expenses is the simple way to describe profitability. This is true for law practices just as it is for any business. As previously, mentioned however, because the practice of law is a profession simply turning a profit does not mean a lawyer can not go out of business for ethical or professional infractions, i.e. commingling trust funds or committing felonies. Some of the key business skills for lawyers are: 1. Understanding profitability and how to manage cash flow concerns— Lawyers should develop a budget, or at least understand what costs are involved in running the law practice. Does the firm have enough money to keep the lights on, pay the secretary, pay the firms’ taxes, and generate a salary for the practicing attorney? Can the attorney reorganize expenses so as to create a situation that would allow for reserves to be put in place to keep a stable income steam for the practicing attorney? Does the local bank find the firm’s financial situation stable enough to warrant lines of credits or commercial loans for financing the practice? Can the firm generate enough income to pay off its debts? 2. Understanding the economics of supply and demand and responding with an appropriate business and marketing plan—Do the practice areas the firm focuses on generate enough business for the economic survival of the firm? Has a marketing evaluation been performed to see if the firm is providing needed services? Is the marketplace too saturated in the areas of practice
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that the firm wants to focus, making it difficult to generate a profit in those areas? Has the firm invested in appropriate, income-generating, and ethical advertising? Are the business and marketing plans in writing? 3. Understanding business ownership and the responsibilities of managing human resources and facilities—Do the law firm owners know how to supervise and manage people? How can staff turnover be dealt with over time so that workers are happier and more loyal to the firm? Have disaster recovery plans been made to address office emergencies? By developing the general business skills mentioned here and generating appropriate policies and procedures, a lawyer, and particularly a lawyer in a smaller office begins to become a better practice manager.

Technology Tools and Skills
In becoming a better practice manager, the law office owner should play very careful attention to the role of technology in the practice of law. Without the appropriate technology, a practice can be left behind in terms of its ability to compete with other firms. From the economic standpoint, the ill-equipped law firm will continue to waste time and money with systems and procedures that do not allow for working on more matters in a more profitable or productive manner. The most basic of computer skills is typing. It may seem trite, but if you do not know how to type, take lessons either online, at a local technical college or trade school, or purchase Mavis Beacon Teaches Typing. Lawyers also have their own set of software and hardware needs. Here is a listing of what should be present in a small, well-managed practice:
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1) Office Suite Applications Word processing a given in law firms of any size. Word and WordPerfect are still the main applications for word processing. While WordPerfect may still be considered the better application for law firms by many, there are more firms using Word now than WordPerfect. The other applications in the suite can also provide benefits to handling information in a law firm. Spreadsheet, relational database, address book and presentation software tools are found in both Microsoft Office and Corel’s WordPerfect Office Suite. In fact, these suites are often a part of the software that is bundled on computers being sold commercially. WordPerfect Office X6 is the latest program from Corel and its Professional Version retails at $399.99 per license or at $259.99 per license for an upgrade. For downloads of the Legal Version, the pricing is $379.99 per license. Microsoft Office 2010 Professional Edition is the suite from Microsoft and retails starting at $199.99. Firms looking to avoid the initial or long-term costs frequently associated with using traditional office suite software now have the option of looking to opensource, and ultimately free solutions. It should be noted that these services are often of the online variety, and may not have the same levels of support and service as the traditional models. Alongside the open-source suites are the cloud-based services like that of Office 365 and GoogleDocs, which are finding themselves being used more and more by the often younger and more technological, risk-taking set. 2) Practice Management Software With prices ranging from $495 and up for the first user, these must-have law office applications are probably now found in about 28 percent of the nation’s law firms. There are still many firms that do not know the value of a practice or case management software system.

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A major function of practice (or case) management systems is that they handle a firm’s matters or cases in such a way that the actual file is being mirrored in an electronic format on the computer. All elements of a legal matter is entered. For instance, a matter record in one of these programs might consist of the following fields: • matter name • matter number • parties to the matter • contact information for the parties (name, address, telephone number, fax number, e-mail address) • appointments • time entries • tasks (both completed and those to be done) • documents • e-mails related to the matter Information from the matter record is integrated with the case management system calendar. This part of the system handles the firm’s docketing needs as appointments and tasks are entered and accessed by everyone in the firm. Group scheduling, repeating appointments, pop-up reminders, and multiple calendar views are standard for these systems. Case management systems also integrate and handle firm contacts. Names, addresses, telephone numbers, e-mail addresses and the like are all stored and maintained in the system. Case managers usually allow for the categorization of contacts so that the information can be put to use in advanced document assembly and management functions. For instance, these systems make it easy for firms to create and send letters to a list of the firm’s active clients.
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Case management systems contain several features that handle major front office work processes. In fact, these programs have grown over the years, and as the features have expanded, these systems have morphed into a larger category of management systems—“practice management systems.” Practice management includes basic case management and advanced integration of features for document generation (creating merged documents with the word processor, document management (organization, storage and indexing capabilities for integrated documents), and client/customer relationship management features. For small law offices, these are the better programs from which to choose: Amicus Attorney, ABACUS Law, Practice Master, and TimeMatters. Another system that is often included in this list is ProLaw Ready. There are also several other systems, over one hundred and twenty others to be exact, that classify themselves as practice management software programs suitable for solo and small firm practitioners. And there are also some practice area-specific case managers, like Needles for personal injury firms, Immigration Professional for immigration practices, or BestCase for bankruptcy firms. With this number of products, you must do your homework before shopping! Cloud-based practice management programs are currently very popular, too. The advantages of having practice management capability online is that there is more ready accessibility to client information, and the addition of extranet capability can make for a more rewarding client experience. While cloud practice managers do not have all of the functionality of their software-based counterpart programs, they are robust enough to manage most client matters adequately from intake to final billing. The monthly fee model used to pay for these systems also provides a simple way to learn how these programs operate without huge investments of money. The
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key to making sure these programs work well is maintaining ultimate control of the treatment of your data by having most if not all copied into a local backup space or medium. As with cloud storage, vendors should be monitored to ensure the security and proper treatment of legal information. Top web-based practice managers include: • Clio • Credenza • LexisNexis Firm Manager • MyCase • RealPractice • Rocketmatter 3) Time and Billing Software/ Accounting Software Time billing and accounting software programs of today make life a lot easier for the entire firm when it comes to tracking time and generating bills. You begin with a place to input time entries or time slips. This interface usually requires you to identify the person tracking the time (timekeeper), the matter/case for which the time is being tracked (client), the amount of time or the amount of the expense being incurred on behalf of the client, and a description of the work or expense item. At the time of billing the program collects the appropriate slips and allows you to generate a billing statement for your clients. When you shop for a time and billing program determine what you will need in terms of accounting. Why? Well, first of all you should have an automated accounting system if at all possible. With the current state of legal technology software, you can even have it both ways with the latest integrated time/billing and accounting packages.
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So, what should you look for in the time and billing/accounting packages? Start with the reports. Make sure your software offers these four basic financial reports to start: • A/R Listing (who owes you and how long they have owed you) • Productivity by Timekeeper (how much time is billed by each timekeeper) • Profitability (how much is collected vs. billed) • Fee Allocation (how a fee is allocated amongst multiple timekeepers) Beyond essential reports, here are some specific time and billing (and time and billing and accounting) products to consider in a small law office: Timeslips This is the most popular time and billing product in the legal industry. While it does not handle general ledger accounting, it is still considered the best product for tracking time and generating bills from those entries. PCLaw A leading integrated time and billing and accounting package for law firms, PC Law allows for easy time tracking and billing and general firm accounting. TABS3 A long time favorite for mid-sized firms, TABS3 is a leading time and billing and general ledger accounting program for law firms. The system is part of a set of products that make bill generation and accounting very easy for law firms. Other software applications that are often found in law firms include Quicken, QuickBooks, QuickBooks Pro, and Sage 50 (previously known as Peachtree). These accounting solutions are not legal specific, but if properly customized, can also be
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helpful in tracking time, generating invoices, and managing the bottom line for lawyers. As with practice management software, you should look for cloud-based products like FreshBooks for general ledger accounting and Time59, Bill4Time or TimeSolve for online time tracking. Also, note that most of the cloud practice managers will include a basic level of invoicing, payment, and trust account tracking. 4) Legal Research Research is essential to the practice of law. Research today is mostly performed online. AILALink offers close to 200 immigration forms in a fillable PDF format that works with Adobe Reader, and coupled with aila.org provide a hefty immigration law library. AILA members also have free access to Fastcase, a comprehensive legal research system containing a full range of federal case law and Board of Immigration Appeals decisions. 5) Internet Access Whether Internet access is made available via Broadband cable access, or via dedicated lines, this technology is essential in the modern law office. The Internet provides access to Internet e-mail, a blessing or a curse; and Internet search engines help navigate the world’s largest repository of information. 6) Security While the access to the Internet is important for staying in contact with others via e-mail and for doing legal research perhaps, there needs to be a level of security maintained by law offices to protect the data flowing in and out of the office. For small law offices, security can come in the form of anti-virus software, firewalls, spam blockers, malware prevention services and the like. Norton AntiVirus and
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McAfee are two of the popular security program providers for small office products with prices starting around $40, but there are hundreds of programs to look at in terms of security including free downloads, like AVG, www.avg.com. Use mainstream products and consult IT professionals to get the right solutions for your practice needs. At the heart of security is the idea that every effort has been made to protect the valuable information found on the firm’s computers and any information flowing in and out of the office from other parties. Seek assistance on security products and services from your local IT consultant or computer administration personnel. 7) Networking When a law office has more than one computer, then that office needs to network the computers together in order to share information and resources most effectively. Networking makes it much easier to plan the necessary daily backup of computer data for the firm. (Law offices should backup their data every day!) The basic “peer to peer” networking is generally sufficient for two to five computers. This network should typically be “hard wired” with CAT5 (IT categorization standard Category 5) or above cabling. Beyond five computers and in some firms with fewer workstations and more advanced practice systems needs, the firm should look to install a dedicated server. Also consideration should be given to installing the appropriate hubs and routers for managing data flow on the network and connecting to the Internet. Wireless technology has begun to impact legal offices too, but it should only be used in very special circumstances is not recommended for use with the traditional practice management and time billing and accounting applications which are often
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relational database programs that require open access throughout. Ultimately, you need to make sure that you review all hardware requirements for any systems you want to include on your office’s network. Being able to use these technology tools is also a required part of practice management. Training everyone how to use these tools is essential to saving time and becoming more efficient in the law office. However, training is often dismissed as a necessary evil that can be avoided by the key members of the staff in law offices. This is a mistake, and it would be wise to not only invest in training, but to make a written technology plan and budget for your small law office to keep up with the latest tools and stay on top of the ever present technology upgrade cycle. Most technology will require upgrading every two to three years. Good practice managers understand that they must invest time and money in technology tools and skills.

Client Relations (Customer Service) Skills
Know how to get and retain clients is at the heart of client relations. Lawyers must have well- hewn customer service skills in order to have good client relations. The skills required to “take care” of your clients are quite often based upon good communication skills. Good lawyers/practice managers know that it is important to know how to listen to and talk to their clients. Not returning client phone calls is one of the main complaints against attorneys. Learning to enhance the way you communicate with your clients can immensely improve the quality and delivery of your legal services. The practice management answer for client communication lies in with your systems and procedures. By closely evaluating your communication systems and procedures and making some appropriate adjustments, you can tackle the problem of not returning calls and other client relations problems, too. These solutions may
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even improve your interoffice communications and relations. Begin by looking at the ways you “communicate” with your clients. You “communicate” with clients: • Over the telephone • Via voicemail • Via facsimile • In person • Via mail • Via e-mail • Via billing statements • Via client newsletters, firm brochures, websites, social media channels, etc. Next, examine your systems and procedures in each of these areas to make your communication with clients more effective. Ask, is the system adequate and up to date? Is this the most effective system for your firm’s needs? Are your firm’s written policies and procedures efficient when actually implemented in your law firm? Finally, make any necessary changes or modifications to your firm’s systems and procedures. You should continue to go through this process as time progresses to make sure you continue to build your skills in the client relations area. How do you know if your clients like the way you have worked for and with them? You have to ask. Use client satisfaction surveys and feedback forms to determine the level and quality of your firm’s interactions and service to your former and existing clients. You can build these items into your marketing plan and use the information you receive in client responses for setting strategic planning goals in both the long and short term.
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Professionalism and Ethics
Regardless of what skills you develop in the business, technology, and client relations areas, you must operate your law office in an ethical and professional manner. Not doing so, can and will most likely result in discipline against you! The Rules of Professional Conduct are in place to direct your behavior as you practice law. Also, encourage your staff members to do the same. If you or your staff have any questions or concerns about the rules or any other issue involving professionalism or ethics, you should contact your state’s bar.

Creating a Business Plan
Everyone in business should have a business plan, not just the people seeking venture capital. Your business plan will be the “road map” of your enterprise. It will show you how to get where you want to go. To develop a good plan, you need to write down the answers to quite a few questions. To get you thinking, let’s jump twenty years into the future. Describe your life. Are you still working or are you retired? Are you worth a lot of money? If so, how is your wealth distributed? Stocks? Bonds? Equity in your business? Other businesses? Are you an independent consultant or do you have a company? How large is your practice/company? What is your annual revenue (in today’s dollars)? How many hours per week do you work? Do you work on weekends? Do you travel? And most importantly, are you happy? Tough questions? Maybe. But they need to be answered honestly and realistically. I know that life can hit you with some unwelcome surprises that might change the way you want things to be. But it is because of these changes that you should reevaluate your plan every two years—about as often as you replace a pair of shoes.
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After defining your long range goals, break them down into ten year and five year goals. Make sure they are consistent with your twenty year plan. The next step is to determine what you need to do to achieve your goals. Here are some short-term questions you should think about: Do you want more customers or steady customers? What is your competition doing? Will advertising help increase your profit? If so, what kind of advertising and what media should be used? Think of your own questions. Your specific marketing strategies will depend on your individual goals (once you have an idea of where you want to take your business). Put your answers down on paper! Organize your thoughts, questions, and concerns. If you have financial data, use it. You don’t have to take your plan to the bank, but by recording your income and expenditure you will have a benchmark to use when you review your goals and accomplishments. Business plans often follow a general format. You can modify this one to suit your exact needs. 1. Executive Summary 2. Company Profile including mission statement that describes your business and why you are in it 3. Competitive Analysis 4. Marketing Strategy 5. Staff Qualifications 6. Financial Information 7. Appendices containing any additional information you would like to include Review your plan for consistency. Is it coherent? Is it realistic? This is your guide to your business. It will help you get what you want. Keep it updated. Change it as
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your goals change or as the market changes. Remember, a little planning will take you a long way.

General Guidelines for Developing Your Business Plan
One of the questions that many entrepreneurs ask is “How do I find someone to write my business plan?” The best answer is to look in the mirror. Although it is always good to have someone with business planning expertise review your completed plan, you will do much better writing the bulk of it yourself. By writing it yourself, you will become an expert in your own business. You will know all of the industry trends, all about your customers, and all about your business as a whole, including the things that you don’t wish to include in your business plan. If you let someone else write your business plan for you, you miss out on a tremendous learning opportunity. Although it will be somewhat time consuming, if you’re interested in success, it’s well worth the time you will spend. When you actually sit down to begin developing your business plan, there are some general guidelines that you can use to make the entire process easier for you. Be sure to refer back to these on a regular basis. By doing so, you will save yourself a lot of time and rework. To develop an effective business plan, make sure you: • Use a typewritten 8 1/2” x 11” format. Use a loose-leaf binder to package the plan and to facilitate any revisions. • Begin with a cover sheet that includes the name, location, and telephone number of the business, and the name of the person who wrote the business plan. • Keep it short and crisp without compromising the description of the venture. • Keep it simple.
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• Organize it appropriately with a table of contents, logically arranged sections, and appendices. • Identify a target market and demonstrate evidence of marketability. • Demonstrate the benefits of your product or service to the user or customer. • Orient the plan toward the future. Attempt to develop forecasts of developing trends and use these forecasts to help you describe what you intend to do - not only what has been done—over the next three to five years. • Do not be too optimistic in estimating sales potential. Develop scenarios that will describe the best case, worst case, and most likely case. Base sales estimates on market analysis, not on production facilities. You can then develop production needs from that information rather than vice versa. • Highlight current and potential problems and demonstrate how they will be overcome. By identifying problems ahead of time, you will also enhance your credibility with investors and lenders. • Demonstrate that you have an effective management team; that not only does it have necessary business skills to manage the venture, but also that it can work effectively as a team.

Cash Flow Projections
Every small business owner needs to understand finance and financial statements. We are not necessarily referring to the Wall Street world of high finance. We mean basic accounting principles and practices that are necessary to keep your business operating. There is a strong correlation between these two facts: Only 40% of new firms survive six or more years, and many business owners understand only the most rudimentary elements of accounting. Two key reasons most often cited for business failure are:
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1. Poor or improper management practices 2. Inappropriate financial controls While the preparation of financial statements is commonly thought of as a necessary evil to meet Internal Revenue Service (IRS) requirements, or to prove the credit worthiness of a business to a banking official, they also serve several useful functions for the small business owner. Aside from the external requirements of banks, creditors and government agencies, timely and accurate financial information provides valuable internal benefits—an accurate picture of the profitability, safety and liquidity of the firm. Understanding financial statements is essential to understanding the financial position of your business. The owner/manager can plan more effectively and avoid problems. It is important that every business owner or manager be able to read and interpret the information presented in financial statements, even if they do not choose to perform the actual function themselves. For this, a reasonable understanding of the sources of data and the concepts used in processing and presenting such data are needed. Even if an outside party is hired to perform the accounting function, the owner/manager should exercise certain controls and review the data produced. Remember, you, the business owner—not your accountant, bear the ultimate responsibility for complete and accurate financial statements. There is a wealth of information available for those who wish to gain a more thorough understanding of these topics. State Economic Development Agencies, Local Chambers of Commerce, Colleges and Universities, Small Business Development Centers and the Small Business Administration (SBA) have several
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programs available. These programs often provide free or low-cost options where special attention is given to the unique circumstances of the small business owner. Consult your telephone directory under U.S. Government for your local SBA office or call the Small Business Answer Desk at 1-800-8-ASK-SBA.

Cash Flow Projections
Cash is the money that flows through business in a continuous cycle without being tied up in other assets. It is often referred to as a liquid asset because it is available to spend. The term “cash” refers to cash, checking accounts and any other monies that are readily available. Cash and profits are “not” the same. Profit measures the income (revenues minus expenses) of the business over a specified period of time. Cash serves several purposes. First, it is used in meeting normal obligations (such as paying bills). Second, it is held as a precautionary measure for unforeseen problems. Third, it is held for investment purposes. A business needs to have enough cash available to meet its obligations as they come due. Employees and creditors expect to be paid on time. Some firms retain excessive amounts of cash in anticipation of unexpected emergencies, however, idle cash would be better invested in generating additional income for the business. Proper “cash management” involves a delicate balance of allowing the company to meet the cash demands of the business, yet avoid retaining unnecessarily large cash balances. Business receipts tend to fluctuate within the course of a year; many small businesses have seasonal sales. Similarly, cash disbursements often fluctuate from one month to another—tax payments, additional inventory purchases and other significant expenditures can often leave a business “strapped for cash” and unable
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to meet its normal obligations. To avoid this situation, it is necessary to plan a cash budget based on projections. Cash flow patterns can be estimated more easily when the owner understands the operating cycle of the business. Normally, decreases in cash occur as purchases are made to increase inventory. This inventory is then sold for cash or on credit. A firm’s cash balance increases when cash is taken in or accounts receivables are collected. The small business owner should prepare a cash budget showing the amount and timing of cash receipts and cash disbursements on a daily, weekly or monthly basis. Fixed expenses such as rent, salaries, and loan payments are known while variable expenses such as utilities and inventory purchases can be estimated from past experience. While this does involve some “guesswork” for a new business, thoughtful planning should result in reasonably accurate predictions. Trade associations, local chambers of commerce and other organizations concerned with small businesses can assist in estimating income and costs for your particular industry or business. Typically, a small business should prepare a projected monthly cash budget for at least one year and quarterly estimates for several years in advance. Formats used to prepare a cash budget vary depending on a particular firm’s requirements. Examples can be obtained in SBA publications or at your local library. Regardless of which format is selected, there are five basic elements involved in completing a cash flow projection: 1. Determining an adequate cash balance: The most reliable method of deciding the proper cash balance is based on past experience. Previous records should indicate the amount of cash necessary to pay all monthly obligations
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plus additional monies needed to cover any unexpected expenses. In lieu of past records, industry averages tailored to your particular business needs along with other available information must be used to make informed estimates. 2. Forecasting sales: The central factor in determining an accurate picture of a firm’s cash position lies in the sales forecast. Sales affect both the firm’s inflow and outflow of cash. For many businesses, sales provide the major source of cash. Similarly, as sales are made, inventory must be replenished, depleting cash reserves. Economic swings, fluctuations in demand, competition and other factors can affect sales patterns. Many financial experts recommend creating three estimates—an optimistic, a pessimistic and a most likely sales forecast. 3. Forecasting cash receipts: This should include income that the business expects to receive from all sources over the projected period. Since sales constitute a major source of cash, the sales forecast will be instrumental in predicting cash receipts. If a firm sells goods and services on credit, the owner must consider the delay between the timing of a sales transaction and the actual collection of the proceeds. By determining the business’ percentage of cash and credit sales and the payment patterns of credit customers, the business owner can make reasonable predictions of when credit sales will be converted to cash. Some businesses may also receive cash from other sources such as interest income, dividends and rental income. 4. Forecasting cash disbursements: Most business owners have a clear picture of the firm’s pattern of cash disbursements. Payments such as rent, insurance and loan repayments are fixed amounts due on specific dates. Although each firm is different, several payment categories are standard including salaries and wages, interest, rent, utilities, inventory purchases, overhead expenses, and
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taxes. The astute owner, particularly for a new business, will plan assuming that payments will be higher than anticipated. 5. Estimating the end-of-month cash balance: To determine this figure, the business owner must begin with the cash balance at the beginning of the month. The end of the month balance is obtained by adding projected cash receipts and subtracting cash disbursements. A positive amount indicates a cash surplus while a negative amount indicates a shortage. This figure should be used to predict the timing and necessity to borrow funds or to plan for the investment of surplus cash.

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Cash flow projections, along with other financial statements, are often used by potentialCash flow projections,determine financial statements, are often used byrepay loans to determine a creditors to along with other a businesses ability to potential creditors in a timely businesses ability to repay loans in a timely fashion. Here is a sample cash flow projection. fashion. Here is a sample cash flow projection.
OGILVIE CORPORATION Cash Projections 2005
Cash on Hand (Begin. of Month) Cash Receipts: Cash Sales Credit Sale Payments Interest Total Cash Receipts Cash Disbursements: Purchases (Inventory) Mortgage Payments Salaries & Wages Payroll Expenses Professional Fees Repairs & Maintenance Supplies Utilities Telephone Capital Addition Miscellaneous Expense Total Cash Disbursements End of Month Balance: Cash (Beginning of Month) + Cash Receipts - Cash Disbursements = Cash (End of Month) Borrowing Cash End of Month (After Borrowing) 20,000.00 91,500.00 -----------21,765.00 -----------21,765.00 ======== 21,765.00 20,015.00 80,000.00 130,000.00 -----------(9,985.00) 30,000.00 -----------20,015.00 ======== -----------31,790.00 -----------31,790.00 ======== 60,000.00 12,500.00 7,500.00 1,300.00 300.00 4,700.00 1,500.00 950.00 675.00 310.00 -----------70,000.00 12,500.00 6,000.00 800.00 500.00 1,256.00 700.00 20,000.00 ------------90,000.00 12,500.00 10,000.00 1,500.00 500.00 750.00 1.00 1,325.00 570.00 80.00 ------------60,000.00 30,000.00 1,500.00 -----------30,000.00 30,000.00 ------------90,000.00 90,000.00 ------------$20,000.00 $21,765.00 $20,015.00

111,500.00 101,765.00 150,015.00

89,735.00 111,750.00 118,225.00

89,735.00 111,750.00 118,225.00

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Basic Financial Statements
The Accounting Equation: Every system is built around the accounting equation which expresses the basic relationship between a business’ assets and liabilities, or what a business owns and what it owes. Assets = Liabilities + Equity An asset is anything the business owns which has value. Some typical examples include cash, accounts receivable and buildings. A liability is anything the business owes. These are debts to creditors such as accounts payable, wages payable or bank loans. Current liabilities are those that must be paid within one year while long-term liabilities are not due for a year or longer. The short-term and longterm distinctions are also used to describe assets. Equity represents the owner’s investment in the business and is often described as the difference between assets and liabilities. This can be better understood by a simple algebraic manipulation of the above formula. Assets - Liabilities = Equity.

The Balance Sheet
The balance sheet presents a summary of the firm’s assets liabilities, and equity (or net worth) on any given date. Its two main sections show: 1. What assets the business owns; and 2. What claims creditors and owner(s) have against those assets. The balance sheet is based on the fundamental accounting equation mentioned
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earlier and can be broken down into three basic sections: assets, liabilities, and equity. Both the assets and liabilities sections are further divided into short-term and long-term categories. The first section of the balance sheet presents the total value of everything the business owns. Short-term assets include cash and items that can be converted to cash within one year such as accounts receivable and inventory. Long-term or fixed assets, such as buildings and equipment, are key in the production of income. The second section lists liabilities or any claims against the assets held by the business. In our example, a building with a net worth of $200,000 is listed as an asset while a mortgage payable (on that building) of $150,000 is listed as a liability. Again a distinction is made between short-term and long-term liabilities. Those short-term items must be paid within one year while long-term liabilities are generally paid over a period of several years. The final portion of the balance sheet shows the value of the owner’s or stockholders’ investment in the business. This often includes the owner’s initial investment, plus any earnings that have been retained by the business, less any losses that have been sustained by the business. The form that equity takes on the balance sheet—owner’s equity or stockholders’ equity—is determined by the legal form of ownership: sole proprietorship partnership, limited liability partnership, corporation, S corporation, professional corporation. The balance sheet represents a “point in time” and is generally prepared at the end of each month, quarter, and year.

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OGILVIE CORPORATION Balance Sheet As of December 31, 2010 ASSETS Current Assets: Cash in Bank Accounts Receivable Inventory Prepaid Expenses Total Current Assets Fixed Assets: Land Buildings Machinery & Equipment Office Equipment Furniture & Fixtures Less: Accumulated Depreciation ---------------Total Fixed Assets TOTAL ASSETS LIABILITIES Current Liabilities: Accounts Payable Notes Payable Interest Payable Wages Payable Payroll Taxes Payable Total Current Liabilities Long-term Liabilities: Mortgage Payable Bank Note Payable ---------------$100,000.00 $21,000.00 $11,500.00 $10,000.00 $27,500.00 ---------------$170,000.00 ---------------$150,000.00 $175,000.00 $355,500.00 $778,950.00 ---------------$40,000.00 $200,000.00 $125,500.00 $25,000.00 $15,000.00 $32,000.00 $104,000.00 $279,000.00 $8,450.00 ---------------$423,450.00 ----------------

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Best in Billing Marketing Management Overview

---------------Total Long-term Liabilities TOTAL LIABILITIES Shareholder's Equity: Common Stock Retained Earnings Total Shareholder's Equity TOTAL LIABILITIES AND EQUITY $100,000.00 $183,950.00 ---------------$283,950.00 ---------------$778,950.00 ---------------THE INCOME Income Statement STATEMENT The income referred to as the profit and loss statement, compares The income statement, alsostatement, also referred to as the profit and loss statement, compares expenses against revenue (or income over a period of time to show the firm's net profit or loss. A year-end financial statement will show the profitability of firm during over a by detailing all time to show year firm’s net expenses against revenue (ora incomeits fiscal yearperiod of income received for thethe less all expenses paid. The income statement follows this general formula: profit or loss. A year-end financial statement will show the profitability of a firm Sales - (minus) Cost of Goods Sold during its fiscal year by detailing all income received for the year less all expenses -----------------paid. The income statement follows this general formula: = (equals) Gross Profit (Margin) - (minus) Sold Sales - (minus) Cost of Goods Expenses ------------------$325,000.00 $495,000.00 ----------------

------------------ Net Income Before Taxes = (equals)
As discussed previously, sales often provide a firm's major source of income. The cost of sales, which represents the costs of purchasing inventory or materials, must be deducted from the total income produced by these sales. This is how the gross profit figure is obtained. Operating expenses such as rent utilities, salaries, advertising and professional fees are then deducted from gross profit to arrive at net income or pre-tax profits. Of course provisions must be made for income taxes before arriving at net profits. A sample income statement is shown below.

= (equals) Gross Profit (Margin) - (minus) Expenses -------------------

= (equals) Net Income Before Taxes
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Entrepreneur Track: The Know-How to Succeed
Best in Billing Marketing Management Overview

As discussed previously, sales often provide a firm’s major source of income. The cost of sales, which represents the costs of purchasing inventory or materials, must be deducted from the total income produced by these sales. This is how the gross profit figure is obtained. Operating expenses such as rent utilities, salaries, advertising and professional fees are then deducted from gross profit to arrive at net income or pre-tax profits. Of course provisions must be made for income taxes before arriving at net profits. A sample income statement is shown below.
OGILVIE CORPORATION Statement of Income Period Ending December 31, 2005 Sales Cost of Goods Sold Gross Margin Operating Expenses: Salaries Payroll Taxes Interest Expense Professional Fees Insurance Office Supplies Advertising Taxes & Licenses Utilities Telephone Depreciation Total Operating Expenses NET INCOME $100,000.00 $ 10,000.00 $ 22,750.00 $ 10,000.00 $ 12,000.00 $ 6,000.00 $ 8,700.00 $ 2,500.00 $ 6,500.00 $ 4,800.00 $ 10,000.00 ------------------$193,250.00 ------------------$306,750.00
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$100,000.00 $600,000.00 ------------------$500,000.00 -------------------

BUSINESS MANAGEMENT (BOOKKEEPING/RECORDKEEPING)

Entrepreneur Track: The Know-How to Succeed
Best in Billing Marketing Management Overview

Business Management (Bookkeeping/Record Keeping)
Accurate and complete financial statements begin with accurate and complete records. The small business owner may design his or her own accounting/ record keeping system with the help of an accountant or purchase one of many standardized systems (computerized or manual) available. Whatever accounting system the owner chooses, it should have the following characteristics: 1. It must be simple to use 2. It must be easy to understand 3. It must be reliable 4. It must be accurate 5. It must be consistent 6. It must be designed to provide timely information The business checkbook is one of the most important records since all deposits and checks are recorded there. A file of supporting documents should be kept for each check and invoices should be marked “paid” to avoid duplicate payment. Business and personal funds should be kept separate. Payroll records should include the following information on each employee: name and address, social security number, number of exemptions, date pay period ends, hours worked, rate of pay total wages, deductions, net pay, and check number. In addition records must be established for accounts payable, accounts receivable, inventory and other functions. In setting up business and financial records there are several key decisions that must be made: Tax Year: the available options are a calendar year ending December 31 or a fiscal year, 12 months ending on the last day of any month (except December). In some
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Best in Billing Marketing Management Overview

cases a combination of these two methods can be used. Accounting Method: Under the cash method, income and expenses are recorded when they are actually received or paid. With the accrual method, income and expenses are recorded when they are earned or incurred. Bookkeeping Method: Each transaction must be recorded With a single-entry system the transaction is recorded only once. This method is often easiest for the new or small business owner and can be accomplished with one of several business checking account systems available. A double-entry system involves the use of journals and ledgers and can be rather confusing for the novice. The following financial checklist summarizes the financial information every business manager should have readily available. Daily • Amount of cash on hand • Bank balance • Daily summary of sales and cash receipts • Corrections of all errors in recording collections on accounts • A record of all monies paid out, by cash or check Weekly • Accounts receivable status • Accounts payable status • Payroll status • Status of taxes and reports to state and federal governments

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Monthly • A record of all monthly account transactions • A profit and loss statement for the month (usually 10-15 days after the close of the month) • A balance sheet to accompany the profit and loss statement • A reconciled bank statement • The balanced petty cash account • Records that show all federal tax deposits for withheld income, Social Security, and Medicare; and state and local taxes paid • Aged accounts receivable (follow up all bad and slow accounts) • Records that show that inventory control is “worked” to remove slow-moving dead stock and to order fast-moving new stock This may seem like “information overload,” but the above records provide a minimum of things, for most businesses, that must be addressed on a constant basis. They also provide a foundation for quarterly, annual, and other periodic reports. In addition to financial statements and records, the small business owner may need to retain additional records for proper business management. These may include records of inventory insurance, maintenance and general office information and procedures. Again, the systems set up should be simple and reliable while taking any other requirements (i.e., legal) into consideration. There are many computer programs designed to address the record-keeping needs of small business. A large software company recently created a new Windows-based accounting computer program that doesn’t require the user to know anything about accounting. Small business represents a lucrative market therefore, as competition for these customers increases, you will probably see more of these products.
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Entrepreneur Track: The Know-How to Succeed
Best in Billing Marketing Management Overview

A warning to the computer-illiterate! Before you make a substantial investment in computer hardware and/or software be sure that you have consulted with a reputable source to ensure the system you purchase will meet your needs without requiring too much time or additional investment. It is also a good idea to consider the business’ future information needs.

Client Relations Forms
Please see examples of a client questionnaire, client engagement letter, and client speed letter to help form your client relation forms.
Natalie R. Kelly is the Director of the State Bar of Georgia’s Law Practice Management Program in Atlanta, Georgia. She writes and speaks locally and nationally on modern practice management and legal technology and provides extensive practice management and technology consulting and training to Georgia Bar members.

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