Top Five Reasons to Track
Your Law Firm's Costs
Office expenses are as much a part of your law firm's day as the practice of law itself. A single print, photocopy, fax, or phone call may only cost a few pennies, but since everyone in your office uses these every day, their costs can quickly add up.
You have two choices. First, you can ignore these expenses and let them erode your profit. Secondly, you can track them and better understand how much you are spending.
Tracking your expenses using financial accounting software is the first step that enables you to recoup them. Using a pen and paper to tally every copy or phone call is one way to track costs, but manual accounting is inaccurate, labor intensive, and expensive. It's also very impractical for today's busy law practices. Fortunately, automated accounting software for the legal industry is the second step to eliminate the problems associated with pen and paper. There maybe times you do not want to bill these costs directly to clients, but, you still need to track and understand them. Using automated accounting software programs makes it easier to record and recapture your costs. The following explains why you need to track costs.
1. Set Reasonable Fees
If your firm is like many others, your fee structure is affected by what competitors charge. The Model Rules of Professional Conduct requires all lawyers to refrain from charging "an unreasonable amount" for fees and expenses.
Fees are only justifiable under the Model Rules if they reflect the value of your services, adjusted for overhead and costs. Tracking your costs enables you to set reasonable fees that will not be too high in the market place or too low that will not cover your costs while maintaining a healthy profit margin.
2. Increase Profitability
Whether you plan to ask clients to reimburse costs or not, you should track costs by case by using business accounting software solutions. If you don't, you are paying your expenses out of your gross revenue. If you track costs manually, you're failing to maximize profit because some expenses inevitably will be overlooked and forgotten.
Software for cost accounting systems can tabulate every expense, enabling you to recoup them by setting appropriate fees or receiving direct reimbursement. Just as importantly, your expense reports can also help you capture time you may have forgotten to log.
3. Better Manage Your Practice
You can't watch what everyone at any given moment to see what their doing. Are attorneys making personal phone calls, prints, copies, faxes; and are paralegals using the print and copy machines inappropriately? Unauthorized use of equipment can cost your firm thousands of dollars in expenses and lost profits a year. And you might have no idea.
Accounting office software for cost recovery systems that control access to equipment and capture usage by each user serves as an omnipresent set of eyes and ears for your practice. If every, print, copy, fax, and call is being monitored by an automated cost accounting system, you can identify and remedy wasteful use of equipment and ensure that resources are being used properly. After all, decreasing waste is another way to increase profit.
4. Use Unique Pricing
You would never give identical legal advice for two different sets of facts. Just as one size-fits-all legal advice doesn't work, neither does one-size-fits-all cost accounting. Charging one client 10 per print or copy may make sense if you expect to make thousands of prints and copies of many original documents in that matter, but that rate may be too low in another case in which you make just a few prints or copies.
If your financial cost accounting software can implement different pricing for different factors, you can make case by case pricing allocations depending on the client, the matter, and other factors. Unique pricing enables you to track differently priced expenses concurrently, so you can print or copy documents for different matters any time with the assurance that the agreed price per copy is being recorded. The flexibility to adjust expense charges is critical to setting fair prices and maintaining good client relations, and the ability to accurately record them is invaluable to reimbursement.
5. Provide Transparency
Clients are no longer satisfied when their attorneys submit single-number bills "for professional services rendered," clients increasingly demand that attorneys itemize their bills. Some companies have even refused to reimburse for costs unless they are automatically captured and itemized using automated software for cost accounting, so they are reassured that the quantities and values are accurate. This occurs when revenue received is first applied to expenses and the remainder is allocated to fees for professional services.
The billable hour is the lifeblood of most law firms. Failing to track expenses can quickly overstate revenue from professional services. Implementing accurate professional cost accounting software can enable your firm to recoup thousands of dollars in otherwise lost revenue and ensure that the results of the operations are accurately presented.
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