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1Chapter 8

Billing and Financial ManagementBilling Should Be Regular and Frequent2Monthly billing is the most common method of billing.Clients prefer smaller monthly bills.A clients perception of the value of legal services diminishes with time.Bill Must Be Effective3Descriptive billsBills that are correctErrors in mathTypographical errorsClient perceives the value to the serviceNickle and Dime charges

The Billing Process4Timesheets prepared by attorney/paralegalData entry into time and billing progamPre-bill generated for review and editFinal bills generatedManagement Reports generatedAged accounts receivableProductivity reportsOther reports

Statutory Requirements for Legal Bills5B&P Code section 6148All bills must clearly state:Amount of the billThe rate chargedThe basis for the calculation of charges and costsMust be furnished to client 10 days following request or every 30 daysBlock Billing6Where multiple tasks are billed as a single entry of time and chargesExample: Research, draft motion for continuance, conf. with attorney Jones re: hearing date and attend hearing on motion for continuance 25hours - $6,250.

Elements of a Legal Bill7Name of the caseBilling periodDate of the workDescription of the workTime incrementName of person performing the workHourly rateCost of the workItemization of costsTotal costsTotal fees and costsPayment terms8

Common UnethicalBilling Practices9PaddingApplying a clients funds to a disputed feeTrust account transfersCharging more than a client agreed to payCharging for services not rendered to a clientCommon Billing Problems10Vague descriptionsPerceived poor work(review and revise)Nickel-and-dime billingTeam churningInteroffice conferencesErrors in arithmeticSent to wrong person or addressPaddingClerical workBlock billingBilling for costs not agreed toDelegable tasks task performed by appropriate personComputerized Billing and Time Accounting11Most firms use some variation of computerized time and billing softwareTraditionally these were in-house software systems Maintained by the firmSaaS (Software as a Service)Hosted by the vendorAvailable over the internetVendor provides maintenance and supportVendor charges monthly fee

E-BillingE-billing a process that allows invoices to be presented to the client over the internet.Typical e-billing flow chart:

13Law Firm Financial ManagementProfitability Factors14DirectR atesU tilizationL everageE xpensesS peed

IndirectS trategyC ultureO rganizationR eward systemsE EnvironmentTwo Types of Expenses15CompensationAssociates and paralegalsAdministrative staffEmployee benefitsOperatingOccupancy costsFinancing costsOffice operating costsCommon Expense CatagoriesAdvertisingBank ChargesBooks and PublicationsCosts AdvancedDepreciation (non-cash)Employee benefits Equipment RentalFile StorageInsuranceLiabilityMalpractice Workers CompensationInterestTravel/MealsOffice SuppliesProfessional DuesRentSalariesTaxesEmploymentPropertyTelephoneTemp. ServicesUtilitiesAccounting Systems17

=Accounting system tracksIncomeExpensesAccounts receivableAccounts payableProvides additional management reportsProfit and loss statementsBalance sheetsCash flow reports

Profit & Loss StatementIncome:Income legal fees$1,350,247Total Income$1,350,247Expenses:Depreciation* 25,250Salaries 550,000Rent 400,000 Taxes 35,000 Advertising 20,000Interest 15,000 Office Supplies 27,000 Total Expenses $1,072,250Net Income $ 277,99718Balance Sheet,AssetsCurrent Assets:Cash in bank$75,000Client Trust account 10,000Fixed Assets:Office equipment $100,000less: Depreciation (20,000)Vehicles 60,000less: Depreciation (5,000)Total Assets $220,000

(Cont.)19Balance Sheet (cont.)Liabilities and Owners EquityCurrent Liabilities:Bank Line of Credit$50,000Accounts payable 7,500Other Liabilities:Client trust liability$10,000Total Liabilities $67,500Owners Equity $152,500Liabilites and Owners Equity $220,00020Balance Sheet FormulaAssets = Liabilities + Owners EquityCash Flow StatementA report that details the cash received and cash expended by the business for each month.Composed of:Beginning cash on handCash receipts during monthCash paid out during monthEnding cash on hand22Accounting MethodsCash Accounting:Receipts are recorded on books upon receiptExpenses are recorded on books when paidBillings or WIP are not reflected on booksMost small firms use cash method accountingAccrual Accounting:Records income when earnedRecords expenses when incurred23Types of Accounting Systems24Stand alone systemsQuick BooksPeachtreeSageIntegrated systemsSystems that include billing and accounting in a single system

Budgeting Process25Project total overhead for the yearPersonnel costs/compensationOperating expenseProject number of billing attorneys/paralegals and target rate for eachEstimate number of billable hours per yearCalculate realization rate - % collectableProject gross billings or gross incomeAdjust the rate, billable hours or overhead to balance budgetLaw Firm Financial Ratios26Annual billable timeAttorneys (partner) income as a percentage of billings60-65% of realized billingsAssociates salary as a percentage of billingsSalary should be 1/3 of billingsNot realized billingsRealization RatePercent of bills collectedTarget is 95% - most firms 80-90%Aged Accounts ReceivableCollection rate is 67% of accounts over 120 days old

Law Firm BankingBank AccountsGeneral Operating AccountClient Trust AccountPayroll AccountCosts Advanced Account

Credit FacilitiesLines of CreditEquipment Loans