People go to law school to become lawyers, not small business owners. But that’s exactly what those who establish their own law firms become, with all the financial responsibility that entails.
“Most attorneys that go into solo or small practice don’t have a background or formal education in financial management,” said Heidi Alexander, Director of the Massachusetts Law Office Management Assistance Program. Many attorneys in Canada and the U.S. “would prefer to just avoid finances altogether,” she says, but knowing how to manage them is “absolutely essential in order to run a successful solo or small law practice.”
Fortunately, there are many ways to build your financial knowledge and get the advice you need to succeed in business.
Step #1: Get to know your accountant/bookkeeper
“The majority of solo lawyers use accountants, but they don't view that relationship as a potentially beneficial learning experience,” said Jared Correia, founder/CEO at Red Cave Law Firm Consulting, which provides business management consulting to lawyers on a subscription basis. “Instead, solo lawyers tend to think of finance as the accountant's problem. And while the scene is a little better in small firms, few small firm managers have a good grasp of their practice's finances.”
That’s a shame, because accountants and bookkeepers are often able to offer sage managerial advice.
“Lawyers should rely on the financial expertise of their bookkeepers and accountants who are familiar with legal accounting requirements and rules,” said Allan Oziel, a Toronto business and technology lawyer who founded Oziel Law. “We encourage our clients to rely on our expertise, so we should be comfortable relying on the financial experts.”
Step #2: Get some business training
Just because law school didn’t teach you to manage a small business doesn’t mean that there isn’t law firm-centric education available to help you out. A case in point: The Canadian Bar Association’s online course Financial Literacy for Lawyers features 12 hours of recordings that cover basic law firm accounting and related topics.
As well, “Lawyers should look to the Law Society programs aimed at solo and small firms, such as the Law Society of Upper Canada’s annual Solo & Small Firm Conference,” said David Thompson, a tax litigation and tax dispute resolution lawyer based in Barrie, Ont.
Community colleges and universities often offer broad-based small business management education. So do public libraries, banks and government agencies, such as the feds’ Canada Business Network.
The best part is that many of these small business management courses are very inexpensive. Here’s a handy list of low-cost education across Canada.
Step #3: Get some decent financial management software
If you know how to use it, accounting software can be helpful. But if accounting principles baffle you – “and face it, many solo lawyers don’t understand simple concepts like Cash versus Accrual Accounting,” said Correia – then you need to find a financial platform that doesn’t speak down to non-accountants.
In his practice, Allan Oziel has found that modern cloud-based accounting platforms such as QuickBooks Online or FreshBooks “offer more basic and understandable financial information to the general user.” In addition, Oziel relies on his cloud-based practice management software to generate productivity and financial reports. "These web-based systems are end-to-end management system for law firms, which includes reporting functions that help make sense of my finances,” he said.
Step #4: Get your financial house in order
The three steps above are all about finding good financial advice. This next step is about adopting good business practices that make it easier to take that advice.
Cleaning up your own finances is as simple as entering expenses and payments into your accounting system as soon as they occur, rather than letting their paperwork pile up on your desk. “No one can recall with 100-per-cent accuracy what accounts and expenses a stack of aged receipts should be assigned to,” said Terry Pricher, a lawyer located in Marblehead, Mass., who audits other lawyers’ financial accounts. “The small errors that occur from inaccurate entries can soon snowball out of control, turning your books into a mess.”
On a larger scale, getting your financial house in order means embracing the responsibilities associated with running a successful small business. To achieve this, “you need to develop a budget, review it regularly, and make business decisions based on it,” says Heidi Alexander. “You should also set aside funds for at least three months of operational expenses – if not more; monitor cash flow on a regular basis; and review your income statement to determine where you might be able to make cuts if needed.”
These four steps will help any firm improve its finances, no matter how “financially illiterate” their lawyer/owners may currently be.
Good advice only works if you heed it. So this is Oziel’s last and best piece of good financial advice: “Continue to remain informed about the state of your finances, and regularly discuss it with your financial professionals to ensure that you are making informed business decisions."
James Careless is a frequent PracticeLink contributor