I enjoy teaching young attorneys who are just starting their solo practice how to manage their own business. In nearly sixteen years of private practice, I’ve learned by doing and now enjoy sharing my experiences.
Lesson 1. Always watch your own money. Read Accounting for Dummies or any similar introduction to accounting. Understand the following basic accounting and tax concepts:
- Chart of Accounts
- Income, Expense, Asset & Liabilities
- Accounts Receivable
- Accounts Payable
- Employment Taxes
- Self-Employment Taxes
- Payroll Taxes
- FICA and Federal Withholding
- P&L Statements
- Balance Sheet
Save yourself a major headache. Have any payroll performed by an outside vendor. For a nominal fee, they will process all required payroll taxes, 941 Payments and will provide appropriate accounting when responding to State or Federal Tax Officials.
If you hire an accountant or CPA, be certain to retain control over your books. Review all work product. Never delegate authority to deposit funds, issue online payments or issue payment from credit card accounts. I would expect the likelihood of misappropriation is small, particularly among the hard working accounting profession. With that said, the old saying goes, “never tempt an honest man / woman…” Fundamentally, no one but you has a true interest in the success of your business. At a minimum, keeping control over important accounting functions forces you to be intimately involved in your books. You should always know where your business stands financially. You cannot have this knowledge unless you are involved in your books. A footnote to busy personal injury lawyers or litigators, you can NEVER be too busy to watch your books. Every time I attempt to avoid this lesson in my own practice, it costs me money; either in the form of fees from overlooked items like missed tax payments or failing to collect a client reimbursement at the end of a big case.
Accounting / Bookkeeping
Without fail, every month reconcile all bank statements, liability accounts, large vendor accounts and Aging Receivables Accounts. Personally review unusual items on any statement to reconcile any discrepancies. Review your monthly P&L Statement to identify where you are spending your money. Reconcile any unusual expenses. Review your income sources to fine tune your business model. If you must delegate the bookkeeping function, insist on seeing full reports on all posting entries.