Tag Archive: Cash Flow – Finances

Internal financial controls

One would think that lawyers could keep their eye on the ball. But, somehow, despite the importance of cash and cash flow to the very survival of the law firm, lawyers tend to focus their attention elsewhere. I find this to be true not only in the small firm, but also in some of our larger brethren as well.

Recently, I was asked to consult about "missing cash." The bottom line is that it’s easy, for even a longtime and trusted staff person, to lose his or her moral compass … when money is readily available … and not regularly monitored! Establish policies for handling cash and for paying bills, the two easiest areas of manipulation by one so inclined. Be persistent in the application of these policies. Ask for an external review of these policies periodically … and their application. Insist that there be no shortcuts in handling the finances of the firm.

Nothing less than the firm’s reputation and standing is at stake! … And the lawyer’s license to practice law.


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Taxpayer changes for cell phones and mileage rates

Cell phones removed from listed property category

Cell phones have become so ubiquitous that the Small Business Jobs Act of 2010 has  eliminated the need to create special record-keeping by taxpayers for employer-provided cell phones.

 

IRS makes mid-year 2011 adjustment to business standard mileage rate

For the third time in six years, the IRS announced a mid-year adjustment to the business standard mileage rate because of rising gasoline prices. The business standard mileage rate increased from 51 cents-per-mile to 55.5 cents-per-mile for the second half of 2011 and into 2012.


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Lawyers fees are capped

Wisconsin is in the news again. A lawyer, who promoted himself as the "king of lemon law," won a judgment for $12,500 against an auto dealership for unauthorized repairs and an award of attorney’s fees of $150,000.  The Republican-controlled legislature was so incensed that they adopted a law (and signed by the governor) limiting attorney’s fees at three times the judgment.  With such limitations, lawyers will be less likely to tackle consumer abuses, the obvious intent of the legislature.

Wisconsin, the historical bastion of progressive legislation and politicians, has certainly served up a strange mixture of bedfellows in the last couple of years. It makes for interesting reading … unless it’s your ax that is being gored. The real question is whether this is limited to the state of Wisconsin or a harbinger of things to come on the national level.

 


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Overhead percentages: What is optimum?

I was asked again about percentages of expenses. The inquiry came as a result of a recent survey that was being reviewed.  What is the appropriate expense percentage of revenue for health, etc. was the question in this instance.

This was my response: 

I don’t worry about surveys or what percentages others manage.  Every business/law firm is different … and there are too many variables to look at others’ operations and then get depressed because you didn’t meet them or elated because you bettered them … each feeling may not be justified. Do the best you can under your particular circumstances.

When I coach and consult with lawyers, that is one of the areas of my inquiry … how we can do what we do better.  If your profit is 20%, for example, who’s to say that it couldn’t be 25%?  And if another firm manages 30%, does that make your percentage a poor performance?  Not necessarily. Remember that percentages of this nature are based off the beginning figure of revenue. How is your revenue?  If you can get it higher, then your expense percentages will be lower/better.

There are too many variables to give a definitive answer. Thus, I distrust the surveys that are floating around.


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Outsource — or Not?

Outsourcing jobs typically pay better than temp work — and certainly better than no work at all. This is the message of a recent article. The legal profession is developing its own caste system. We all understand some of the differences, or castes:

  • Big Law vs. Small Law
  • Sole practitioner vs. Large firm lawyer
  • Specialist vs. Generalist
  • Boutique vs. Full product line
  • Domestic vs. Outsource (overseas as in India and Philippines)

And I’m sure there are other distinctions that I’ve overlooked. But, now there is another phenomenon appearing. ….

(more…)


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ROI for marketing

Even marketing folks are concerned about the return on the investment in one’s daily activities. While some folks, yes, lawyers too, ignore the money, marketing professionals are trying to convince their management that they are important to the success of their organization, that they are responsible for a lot of new business.

AdAge says: "…Return on advertising investment has always been a priority for marketers, but in the recession it flew to the top of the list. As chief marketing officers fought to justify spending within their organizations — often via spirited discussions with procurement departments about where the dollars are going… " The Days, the subject matter of this article, I’m pleased to say are friends … and outstanding marketers who focus on providing a profit on marketing dollars spent.

Do you look at this issue? Can you determine whether the money you spend is producing a profit, is enabling you to expand in your practice area, is improving your skill as a lawyer, or otherwise contributing to the improvement of your law practice?  You should. If not, you’re in the gardening, playing with the dirt rather than growing gorgeous roses for sale to others who can appreciate your skills.


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Have we hit bottom?

"The NLJ 250 collectively employed 9,567 fewer lawyers in 2010 than it did in 2008, a decline of nearly 8 percent in headcount, with the 10 largest firms in the U.S. alone losing more than 1,000 lawyers last year. This is just the second time in the 34-year history of the NLJ 250 survey that the nation’s largest law firms have experienced a net reduction in employed lawyers for two consecutive years."

This group of law firms, the largest of which is Baker & McKenzie at 3,700+ lawyers, makes up less than 5% of the attorney population. Their growth, like all corporate growth, has its expansion and contraction phases. There are at least two questions that come to mind:

1.  Is this contraction permanent? Is this contraction a reflection of the entire industry?

2.  Does this contraction reflect a major shift in the way legal services will be delivered in the future?

My crystal ball does not give me the answers. But, I believe that

i) even sole and small firm practitioners felt the change;

ii) though the numbers in the survey reflect 2008 as the base year, there does seem to be a cautiously upbeat attitude among lawyers today. More lawyers are contacting me with the serious questions of how do we make our practice better, how do we grow our practice … in other words, lawyers are starting to come out from their caves, a bit shell shocked, but ready to understand the needs of clients and focus on providing solutions to their clients;

iii) it’s not the contraction that will cause the shift in the way services are delivered, it’s the continuing evolution of technology that will impact the delivery of services. And this conclusion would have been the same with or without the contraction. It’s just that, because of the contraction, we’re more sensitive to the changes. But, these changes began before 2007-2008, and they will continue after 2011.

Lawyers have to be more sensitive to technological changes and how these changes can improve their efficiency and mode of delivery. Clients certainly are and they are looking for those lawyers who can reduce their legal costs (not necessarily hourly rate). Thus, even the decades-old billing and pricing models will be subject to pressures that mere conversation failed to impact until now.

As Oprah said yesterday while interviewing the President and First Lady, "… keep your eyes on the prize."  Know what you want in your practice. Know what your clients want from you … what is the ultimate solution they are seeking by engaging your services? Stay focused and you will have happy clients … happy clients pay their bills … happy clients refer their colleagues and friends … While doing good, you will be able to do well.


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Client Trust Account Recordkeeping Altered

In most states, strict compliance with trust accounting regulations is required. Where such regulations require a paper trail that includes retaining canceled checks and other features of an older era, lawyers are inadvertently out of compliance.  How? Why?

The banking industry has moved on. They are into the electronic age and we have not kept up.  For example, few banking institutions, if any, still return canceled checks. They send photocopies and, after a short time, destroy the canceled checks. See the federal Check Clearing for the 21st Century Act.

In August, 2010, the American Bar Association’s House of Delegates adopted the new Model Rules for Client Trust Account Records to replace the Model Rules on Financial Recordkeeping, in effect since 1993. The ABA rules now enable lawyers to use electronic tools to comply with Model Rule 1.15 concerning holding clients funds and property.

Check your State rules — not all states have updated their regulations.

 


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Big Brother Expands His Watch

The States are now using more creative ways to increase their revenue. If they can’t raise taxes, they increase the cost of parking tickets. What used to be a few dollars is now close to $100. What used to be $100 for a moving violation is now $468 for making a right turn on a red light where not permitted.

And, now!  Where a taxpayer is delinquent on taxes due and owing, financial institutions subject to a new California law must provide to the Franchise Tax Board (the State equivalent of the Internal Revenue Service) on a quarterly basis the name, record address, and other information for those people who maintain an account at the financial instiution.

The cost of this new initiative will be paid by banking consumers on opening new accounts. And/or banks may decline to open accounts for depositors who are on the delinquent tax debtor list.

How do you get on this list? Fail to pay a demand for payment for 30 days. Nothing is said about the right of the taxpayer to protest the validity of the State’s demand.

Technology is becoming a bill/tax collector … First, for deadbeat dads who have a job or who receive money from the government. Now for those who have money in a financial institution but don’t pay their taxes to the State. And, as we know from recent exposes, we are being tracked by the use of our Smartphones. And tracking us by the use of our credit cards at gas stations, ATM machines, seems to be commonplace.

There seems to be no plalce to hide.  What’s next?


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Credit Card Use — Beware!

On February 10, 2010, the California Supreme Court handed down its decision in Pineda v. Williams-Sonoma Stores, Inc., — Cal. Rptr. 3d —, 2011 WL 446921 (Cal. Feb. 10, 2011). This decision should be studied by everyone who accepts credit cards in payment for goods and services.  Yes, this applies to gas station pumps that ask for your zip code as well as to attorneys and others. 

The Pineda decision held that merchants who request a consumer’s zip code to complete a retail credit card transaction have violated California’s Song-Beverly Credit Card Act (“SBCCA”). The SBCCA contains a provision that prohibits merchants from requesting and recording “personal identification information” about the cardholder. Penalties for violating the SBCCA range from a maximum of $250 for the first violation to $1,000 for each subsequent violation. Needless to say, the potential damages for a retailer who routinely processes hundreds or thousands of credit card transactions per day could be astronomical.

What’s the big deal? Well, the zip code, plus the name of the person, can be reverse "mined" in order to get the address of the person along with other important personal information, the precise thing the law was designed to prevent.

Of course, if you have this information as part of your file, I would guess the law doesn’t apply because you’re not asking for the zip code specifically in relation to accepting the credit card for payment.  But, be careful.


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