Money Management 101 for Solo and Small Firm Professionals

Episode Notes

Transcript

New Solo

Money Management 101 for Solo and Small Firm Professionals

08/30/2019

 

[Music]

 

Intro: So you are an attorney and you have decided to go out on your own, now what? You need a plan and you are not alone. Join expert host Adriana Linares and her distinguished guests on New Solo. Tune into the lively conversation as they share insights and information about how to successfully run your law firm, here on Legal Talk Network.

 

[Music]

 

Adriana Linares: Hello, and welcome to New Solo on Legal Talk Network. I am Adriana Linares, your legal technology trainer and consultant, and I am your host. I help lawyers and law firms use technology better. Thanks for joining us today.

 

But before we get started, I want to make sure and thank our sponsors.

 

Nexa formally known as answer1, is a leading virtual receptionist and answering service provider for law firms. Learn more by giving them a call at 800-267-9371 or online at nexa.com.

 

Thanks to our sponsor Clio. Clio’s cloud-based practice management software makes it easy to manage your law firm from intake to invoice. Try it for free at clio.com, and that’s clio.com.

 

We want to make sure and thank our sponsor LAWCLERK, where attorneys go to hire freelance lawyers. Visit lawclerk.legal to learn how to increase your productivity and your profits by working with talented freelance lawyers.

 

CourtFiling.net, e-file court documents with ease in California, Illinois, Indiana and Texas. If you file in LA Superior Court, you know that e-filing has recently become mandatory and CourtFiling.net is there to help.

 

I’m excited to introduce you to my guest today. Her name is Amanda Moore. She is one of my dearest friends and I’ve been asking her for a long time to come on and just talk to us about accounting basics. And she’s rolling her eyes at me right now, she says, nobody needs accounting basics when it comes to lawyers, they’re smart enough to know, and I always say, you know, a lot of us are just small business owners and getting started and a lot of lawyers that listen to this podcast are maybe new solos, new lawyers, we could use some help.

 

Hi Mandy.

 

Amanda Moore: Hi Adriana.

 

Adriana Linares: Thanks for coming.

 

Amanda Moore: Nice to be here. Thanks for having me.

 

Adriana Linares: Thanks for coming by my crash pad in Florida and helping me teach some lawyers about some basic accounting stuff.

 

Amanda Moore: That’s awesome I’d enjoy meeting your dogs.

 

Adriana Linares: Which we should just make a disclaimer that if you hear any growling or fighting, it’s all normal, not anything illegal happening here, it’s just a bunch of dogs arguing over bones and pigs hoods and who knows what else they’ve got laying around here.

 

So you’re a CPA?

 

Amanda Moore: Yes, I am.

 

Adriana Linares: How long you have been doing that?

 

Amanda Moore: For 30 years.

 

Adriana Linares: What? Wow. You don’t look it.

 

Amanda Moore: I’m 29 so.

 

Adriana Linares: Yeah, okay.

 

Amanda Moore: I got my sense.

 

Adriana Linares: Right, right out of the womb.

 

Amanda Moore: Right.

 

Adriana Linares: You’re pretty neat because not only are you a CPA with 30 years of experience, but as our dear friends, Barbara Leach and Liz McCausland, like to say you climb the sides of mountains with your hands.

 

Amanda Moore: I do, do that.

 

Adriana Linares: Yeah, that’s your favorite hobby.

 

Amanda Moore: I do enjoy climbing, yes.

 

Adriana Linares: That’s pretty cool. You can’t do that in Florida though.

 

Amanda Moore: No, I have to travel.

 

Adriana Linares: Yeah, you travel, and you go to cool places like Colorado, but last year you did a cool spin in Spain?

 

Amanda Moore: Yes.

 

Adriana Linares: That was awesome.

 

Amanda Moore: Yeah, I have been to Spain a couple times.

 

Adriana Linares: It does not seem to me like accountants would be that open to such risk.

 

I mean I guess I kind of think of accountants as being conservative?

 

Amanda Moore: That’s true. I think most are, but probably like a lot of professions where you’re so concentrated in one area, you kind of had the desire to break out and do something completely different.

 

Adriana Linares: Yeah, in your accounting world as a CPA what do you do?

 

Amanda Moore: I am an auditor.

 

Adriana Linares: Okay. This is an important question because I think sometimes when we’re starting small businesses and I speak not only from my personal experience but of course from talking to lawyers who are either new lawyers, young lawyers or a lot of times there’s lawyers who’ve been practicing for a really long time but have been part of a larger law firm and don’t have to think about these things that often.

 

So I really wanted to just answer some basic questions, ask you what are some frequently asked questions that you get when people come to ask you for advice and their accounting, but the first thing is, there’s different types of accounts?

 

Amanda Moore: Yes.

 

Adriana Linares: So, I’ve asked you a couple times for tax help with my — when I’m preparing taxes, which I don’t do because my accountant does, and you always remind me I’m not a tax accountant.

 

Amanda Moore: That is true.

 

Adriana Linares: Okay, help us understand when we’re seeking help what the differences are in accounting and tax professionals?

 

(00:04:56)

 

Amanda Moore: Well, there are a lot of large firms, they do everything. So they can provide all those services, but normally accountants, CPAs will specialize in like audit or tax. There’s a lot of in between and other specialties that branch off, but there’s basically audit or tax.

 

Adriana Linares: And then you have a cool specialization in your auditing world?

 

Amanda Moore: I do. I work with a lot of homeowners associations and condominium associations.

 

Adriana Linares: And so what do they need audited?

 

Amanda Moore: Their financial statements.

 

Adriana Linares: And that’s a requirement from their boards?

 

Amanda Moore: From the State, yes, State of Florida.

 

Adriana Linares: See, I learn things from you. I listen to you when we’re talking business and you say, well, I go, well, why did they need that and you tell me, well, their boards or their leadership ask you for it or they hire you for it and that’s because there are laws that require them to do that?

 

Amanda Moore: Yes.

 

Adriana Linares: Oh, it’s pretty cool.

 

Amanda Moore: And they don’t all have to have audits, it depends on the size, some of them need compilations, some reviews and then the larger ones need audits.

 

Adriana Linares: What about bookkeeping?

 

Amanda Moore: As far as me personally?

 

Adriana Linares: Just in general, so would my accountant be my bookkeeper and is my bookkeeper my accountant?

 

Amanda Moore: Your tax professional is usually not your accountant unless you’re very small, they can go in a year end when it’s time to do your taxes and clean up your books, make entries, small entries, but normally your bookkeeper is someone else. It’s an independent person who’s probably not a CPA, it could be a CPA but a lot of times it’s —

 

Adriana Linares: Do they have to be licensed to be a bookkeeper?

 

Amanda Moore: No.

 

Adriana Linares: Okay. So anyone can be a bookkeeper as long as they’re good at keeping books?

 

Amanda Moore: Yes.

 

Adriana Linares: Is that what you are telling me?

 

Amanda Moore: Yes, yeah.

 

Adriana Linares: And just to give listeners an idea if you know, what’s the average-ish rate for bookkeeping? Like is it a $150 an hour?

 

Amanda Moore: No.

 

Adriana Linares: Is it $10 an hour?

 

Amanda Moore: No, I think it usually ranges between probably $20 and $50 an hour.

 

Adriana Linares: So if I’m starting my small law firm and I’m looking for somebody to help set up my books, can a bookkeeper do that for me or do I go to the accountant?

 

Amanda Moore: Your bookkeeper can do that for you. You’d want to make sure that they were knowledgeable in whatever software you’re going to use.

 

Adriana Linares: Oh, great segue into my next question. What software should I use?

 

Amanda Moore: As much as I hesitate in saying the QuickBooks, because that’s what everyone uses, it’s the main software program out there.

 

Adriana Linares: Yeah. So I just want to spend a couple minutes talking about that because what I see and I’m not a tax professional, and I’m certainly not a business adviser, I just help lawyers with technology, right? So there’s a lot of new and by new I mean in the past ten years not necessarily brand-new, but there’s a lot of practice management programs which are modern and cloud-based and they don’t do accounting. It’s a weird world that legal is living in right now because in the Fred Flintstone days of running a law firm if we had practice management and accounting packages that were rolled into one.

 

So they were custom, well, not necessarily custom, but they were legal-specific, very sophisticated software programs that allowed lawyers at the front of the house to manage all the information about a case; dates, deadlines, parties, calendaring and documents. But that program directly integrated with the back of the house which provided the actual billing, the invoicing, the accounts receivable and all that what I refer to as sophisticated accounting, and then about ten years ago the platforms sort of blew up and all these startups started creating practice management programs like one of my sponsors is Clio.

 

And I know you’ve heard me talk about Clio all the time, we talk about Clio, you’ve been to the Clio Conference actually.

 

Amanda Moore: Yes.

 

Adriana Linares: And Clio came in and they said, all right, well, we’re going to build a modern practice management program, but we’re going to leave a lot of the ancillary or add-on services that law firms need to experts and we’re just going to build this box, it does 10, 12, 15, 20 things really well, but one of the things they chose not to build into the product was accounting.

 

So what they do is they export to QuickBooks and then they all export to QuickBooks; Clio and its competitors tend to export to QuickBooks.

 

So law firms now are especially in this sort of modern world of this cafeteria style of picking your technology infrastructure, you pick this for practice management. You can even have something different that does your document management and then there’s got to be something that does your accounting or at least exports to an accounting program and then you let your accountant take over.

 

So QuickBooks Online has obviously been the big elephant in the room that like you said, you hesitate to say it, but that’s just what everybody uses.

 

Amanda Moore: Right.

 

Adriana Linares: So when law firms come to me and they say, well, you know, what should I use for accounting? I always say, well, there’s some great new competitors out there, Xero is one of them that they often show up at trade shows and practice management seminars, and there they are, so lawyers are like should I use Xero? And I always say, well, if you use Xero you’re probably going to tap in to their network of accountants and consultants that are familiar with the Xero software.

 

(00:10:02)

 

So my question to you is just as a CPA out there in the world are you getting a lot of requests, are you feeling the pressure to get familiar with Xero or is it really just QuickBooks is still the leader and this is where we’re all stuck?

 

Amanda Moore: QuickBooks is absolutely the leader but I am feeling pressure. I would like to have the time to research it myself because I personally would like to find something else that I can recommend to clients because a lot of people are looking for something else.

 

Adriana Linares: Why do you think that is?

 

Amanda Moore: I think there’s limitations with QuickBooks especially in different industries and I think a lot of people want something that’s industry specific so they don’t have to tailor QuickBooks to meet their need. There’s something out there already ready to go for them.

 

One of the problems is I think a lot of CPAs and bookkeepers are familiar with QuickBooks and so we keep pushing them in that direction because that’s what we know.

 

Adriana Linares: What about one of the issues that I see a lot is QuickBooks Desktop, so a law firm comes to me and they go, okay, well, I’ve got the accountant, I’ve been using for a really long time except he or she refuses to use QuickBooks online, they’re making me use QuickBooks Desktop which I think is just a death wish of waste of time because eventually QuickBooks is going to push us all to subscription service.

 

Amanda Moore: Right, yeah.

 

Adriana Linares: Just like all of our other important infrastructure software, we’re all going to subscription. So what do you say when people say to you, well, I’ve heard QuickBooks Desktop doesn’t do everything QuickBooks Online does because that’s what accountants will tell these lawyers that come to me, they’ll say it doesn’t do everything. Is that still the case today as far as you can tell?

 

Amanda Moore: Desktop does more?

 

Adriana Linares: Yeah or if there would — if there’s really a compelling reason to stay with desktop.

 

Amanda Moore: I don’t think there is now. I think that the online version they’ve made — they’ve adapted almost everything, so that you can customize your reports. There were certain reports used to be able to not be able to run and now you can and one of the main reasons to go online I think it’s that your bookkeeper or CPA can access it remotely.

 

Adriana Linares: And easily.

 

Amanda Moore: Right, so you don’t have to bring all your tax documents in your —

 

Adriana Linares: Or scan them in and print them in a portal or something.

 

Amanda Moore: Financial statements, right, your CPA could just go in and log on themselves and access everything they need.

 

Adriana Linares: Well, in my very limited experience with QuickBooks which I’ve always had my company since 2004 on QuickBooks and of course, when the change started to happen, we all had to go to subscription I waited and then I felt everyone’s pain of, it doesn’t do everything yet, it doesn’t do everything yet.

 

But that was probably five years ago and at this point, I haven’t found anything with QuickBooks Online that I couldn’t do or didn’t do with Desktop. So I feel like the parity has peaked and it’s good.

 

Amanda Moore: Yeah, I think they’ve done a good job of bringing anything everything up today.

 

Adriana Linares: Not to mention, any question I ever have with QuickBooks if I Google it, there’s an answer.

 

Amanda Moore: That’s true.

 

Adriana Linares: Because I’m never the first person to have that problem or ask that question except for when I call you in a fit of rage.

 

Amanda Moore: And I’m googling while you are asking me the question.

 

Adriana Linares: Hey, that’s what I do too when lawyers call me. All right, so that’s cool QuickBooks Online probably not so bad and just as a quick note to listeners, QuickBooks does have different tiers of service and it can be as little as I think $20 a month and up. So you really want to look at the different tiers of service and maybe talk to your accountant, make sure you’re paying what you should be paying.

 

I’ve been paying $70 a month and realized I didn’t really need to, so I’m able to downgrade to the $20 a month, which is much more reasonable than what — I mean I didn’t need three users, I didn’t need a lot of the features that it had so.

 

Amanda Moore: Are they actually allowing you to downgrade because in my experience it’s really, really difficult to downgrade.

 

Adriana Linares: No, they’re making it super-hard and I wasn’t going to talk about that.

 

Amanda Moore: Okay.

 

Adriana Linares: But I’m going to do it because they’re not going to get my $50 anymore for nothing. That’s why we hate them.

 

Amanda Moore: Yeah, I mean, I haven’t been able to do it, they wouldn’t allow us — no one has been able to downgrade.

 

Adriana Linares: No, we’re trapped, we’re like prisoners, I can’t get out and so I’m going to escape and then I’m going to put myself right in that same prison and it’ll just be a much cheaper cell. I’m brand-new business owner and I don’t know anything. Remember that lawyer I sent you that that she called herself as zygote of accounting because here you had this really smart lawyer, obviously she’s an IP lawyer, she’s got a 12-person firm. But what was interesting about her is the patriarch of that firm retired and left it to her. And so, here she is, she’s in a panic because one, she wants to modernize because she hadn’t been able to do that while he was there and really it wasn’t her firm to do it, but now it’s hers.

 

(00:15:58)

 

So that’s how she got a hold of me, she wants to modernize and she really wants help with understanding her bookkeeping because there’s a bookkeepers who as a smart new business owner, should have done, she looked around the landscape, it was like, okay, I’ve got this legal part figured out. I got the assistance figured out. I got paralegals. I have no idea what that person in the backroom does.

 

Amanda Moore: Okay.

 

Adriana Linares: And she reached out to us and I sent her to you and she said, I just need to make sure my monies and it’s not that she had any distrust or actually had any reason to believe there was anything going on, just as a smart business owner, she decided that she needed to know what to look for and what to do.

 

So when you get a call like that what’s the first thing you say to someone, like how do we start at Xero? Remember, we’re talking to smart people, but they don’t know anything about their books.

 

Amanda Moore: Right, first of all, she was great and she had a really, really common problem. I mean it’s the most common problem small business owners have and that is if they have a bookkeeper and they have no idea what they do or if things are being done properly and I think the main thing that you can do as a small business owner is to request certain reports each month.

 

Adriana Linares: Let me get my pencil up. Tell me what those are, Amanda?

 

Amanda Moore: Yes. Well, first, it’s very difficult to go on your bookkeeping system and start sorting through the data and pulling up reports and trying to figure it out for yourself. But it is important I think to let your bookkeeper know that you’re looking and even if you trust your bookkeeper and you had them forever and they’re wonderful, it’s important to let them know that there’s someone there taking a second look.

 

Adriana Linares: Would you suggest that they say, listen, I’m going to ask you for these four reports every month, I have no idea what they say or do and I have no idea what I’m going to do with them but I want the reports anyway.

 

Amanda Moore: Yes, definitely. Yeah, I mean because it’s important to — I mean you’re speaking to an auditor so I think there should be a second set of eyes on everything and even if you don’t look at the reports, there’s several reports you should be asking for.

 

Adriana Linares: What are they?

 

Amanda Moore: Your balance sheet and your income statement.

 

Adriana Linares: Is that one or two?

 

Amanda Moore: Those are two, they’re your financial statements.

 

Adriana Linares: Okay.

 

Amanda Moore: So your detailed general ledger which is basically a report that all of the accounts that are listed on your balance sheet income statement, it is in detail what goes into every one of those accounts. So if you are looking at an expense account for supplies and it was really high and you would say I wonder why it’s so high this month, then you could go to your detail general ledger and you can see all of the checks that were written, everything that went through that account that month. So it’s a great report, it’s really kind of the Bible for most CPAs.

 

Adriana Linares: What’s interesting about that I can give a real simple example is I had this law firm the other day who told me we’re spending $40,000 a year on IT and we don’t know what that means.

 

Amanda Moore: Right.

 

Adriana Linares: I thought, okay, well, you’re 12 people, I don’t know that that number makes sense that that’s what that attorney said. I mean again, going back to we don’t really — they don’t really know what we’re looking at, we don’t really know, but we know what makes sense and spending $40,000 a year on the line for IT and you don’t either see a gold server sitting in your server room. Then it’s going to cause you to ask questions.

 

Amanda Moore: Right, and most of the time, people have just forgotten, most people look in the detail of the account and they’ll see the list of things that they purchased and it was like, oh, that’s right, I forgot, we bought five computers and —

 

Adriana Linares: Right, right, because you’re not going to remember in October what you did the first week of January necessarily which is probably when we end up buying a lot of technology and infrastructure as that example would go.

 

Amanda Moore: But often something else that happens is things are miscoded by your bookkeeper. They’ll put expenses in the wrong expense accounts. So by glancing down your detail general ledger you can spot that easily and in QuickBooks it allows you to edit everything so you can go in and put it in the right expense account.

 

Adriana Linares: Why do they call it a detailed general ledger that seems to be an oxymoron of sorts, kind of like jumbo shrimp? How can it be detailed and general at the same time?

 

Amanda Moore: Okay, well, your ledger is from old times, it used to be your list of everything, your ledger was your list of everything that was happening, all the checks you’d written, they were all your income. So your general ledger is it covers everything and basically the general, I think was referring to all the expenses, all the income accounts, assets, liabilities. But the detail means that it drops it down so that you can see within each account.

 

Adriana Linares: Every line item.

 

Amanda Moore: Right.

 

Adriana Linares: Like we bought —

 

Amanda Moore: Your supplies I went to —

 

Adriana Linares: Speaking of which just want you to know I now have the three-hole punch, so you don’t need to get one.

 

Amanda Moore: Oh nice, all right.

 

Adriana Linares: Because I’ve got one now.

 

Amanda Moore: All right, thank you for that.

 

Adriana Linares: Yeah.

 

Amanda Moore: I will be borrowing that very soon.

 

Adriana Linares: Oh no, wait, you had the three-hole punch along the paper-cutter. Okay, well I got a three-hole punch now, I won’t have to come over anymore and —

 

Amanda Moore: Because mine would not fit enough papers.

 

Adriana Linares: I know, it’s very pathetic three-hole punch.

 

Amanda Moore: And so now you have a real one, like industrial?

 

Adriana Linares: Yeah, it’s pretty good. Yeah, so if you need one, I’m here.

 

(00:20:02)

 

So, are those the main things, what’s my balance sheet going to tell me?

 

Amanda Moore: Oh, I am not finished.

 

Adriana Linares: Oh, oh good.

 

Amanda Moore: Okay. So you have your balance sheet, your income statement, a detailed general ledger and then you want your bank reconciliation, and a very important detail that’s often overlooked is you want to make sure it reconciles to Xero.

 

Adriana Linares: I’m a big fan of that. I will spend 16 days getting that thing to Xero.

 

Amanda Moore: Well, it’s important because it’s called the Bank Reconciliation for a reason, you want to reconcile in the end, and a lot of times it does not reconcile. They will be that un-reconciled difference and QuickBooks throws it into an account and a lot of people are very happy with that, but you want it reconciled to Xero.

 

Adriana Linares: Accountants don’t like that.

 

Amanda Moore: Otherwise it’s not.

 

Adriana Linares: It’s not, it’s irreconciled.

 

Amanda Moore: It’s inreconcilable.

 

Adriana Linares: And I am sure accountants do not like when QuickBooks throws that number into some random account.

 

Amanda Moore: No, no really don’t. And then you also want your bank statement, hopefully with a bank statement that includes copies of the canceled checks, because unfortunately the one thing that I personally don’t care for with QuickBooks it is allows you to edit everything.

 

So it will even let you change the payee on a check, so you may be looking at a detailed general ledger and think you know everything that’s in that account but the check could have been written to someone else. You can go in and edit the payee after the check is written.

 

Adriana Linares: You know what now that you say that, I’ve always heard that that’s the problem with QuickBooks for legal. I assume it’s the problem with QuickBooks for any business, but specifically in the legal world when I’m talking to friends and experts that specialize in legal, that’s what they say; but again, that’s going to be a major problem for anybody.

 

My question is, is there a log somewhere on the back end that says Adriana changed that check from Office Depot to emergency or from emergency vet services to Office Depot?

 

Amanda Moore: There is, there is an audit log.

 

Adriana Linares: But not that this has ever happened.

 

Amanda Moore: It’s kind of hard to find it though. It’s up in the gear and then you have to go through several steps to get to this audit log, so a typical attorney or small business owner would not know how to find that.

 

Adriana Linares: But now we are all alerted to the fact that there is an audit log and is that something we should go look at every once in a while?

 

Amanda Moore: I think it’s much easier to look at your bank statement when it comes in, because you’ll have your general ledger there so you can see all the checks that you’ve written for the month and then you’ll have your bank statement.

 

Adriana Linares: Online or on paper.

 

Amanda Moore: Right, and you can glance down and see all the copies of the canceled checks and just glance down the payees and you’ll be able to see very quickly if all the checks were actually written to your normal vendors.

 

Adriana Linares: This reminds me of another attorney. She charges like $650 an hour in Louisville Kentucky, right? So it’s a high-end lawyer. Well, she had had this bookkeeper for a really long time who she trusted, never asked any questions, everything was just taken care of. That bookkeeper — I can’t remember if they got in a fight and she left or if it doesn’t matter, point of the story is the bookkeeper left and provided no more support and she came to me, she goes, I have no idea what’s going on. Again same story.

 

So had she — I guess it’s kind of like the other lady, but I guess what I’m saying is lawyers should take what an hour out of every month at the beginning of each month just to look down all these reports and look at all these statements and just make sure there’s nothing that doesn’t look right as a place to start and I don’t think a lot of them do that including her, because they’re so busy, they have clients that pay them a lot of money and they just don’t make the time and I really wish they hate having conversations like this.

 

Amanda Moore: Right, most of them don’t have the time and the thing is most of them don’t ask for the reports. The main thing is you really want to ask for the reports even if every other month you don’t have the time to dig in and look through the general ledger or look through your bank statement. If you ask for them, that’s a huge deterrent.

 

Adriana Linares: Yeah, that makes sense, that makes sense. Do we need to talk about what a balance sheet is? Can you just tell us real quick because I actually don’t know what that is?

 

I know, I’ve had a company for 14 years, I don’t know what that means.

 

Amanda Moore: Your balance sheet basically shows you everything that you have. It would be like your cash, your accounts receivable, any fixed assets, your chairs, your conference table, and then also any of your liabilities which are generally debt.

 

Adriana Linares: Oh, now that you say that I do know what it looks like and I do review it at the end of the year just to make sure there’s nothing weird in there in case I ever get audited.

 

Amanda Moore: It’s pretty — yeah, it’s pretty simple.

 

Adriana Linares: Okay, it’s understandable.

 

Amanda Moore: That’s your liabilities and then your equity, anything that happens with the owners.

 

Adriana Linares: So a lot of fancy talk, Mandy. What about my income statement, what do I need to know about that?

 

Amanda Moore: Your income statement shows all the money coming in and all the money going out. So —

 

Adriana Linares: Right, they call it an outcome statement. I mean seriously —

 

Amanda Moore: When you do a CPA.

 

(00:25:00)

 

Adriana Linares: We don’t question these terms. No sense of humor, okay. Right, you got your 10 key out.

 

Amanda Moore: I do.

 

Adriana Linares: Okay, I love that. Do you use the USB 10 key on your laptop when you don’t have a full-size laptop with a keyboard on it, a key, 10 key, do you plug in your USB and there you are?

 

Amanda Moore: I usually drag my very large old-school 10 key around with me. I affectionately call him Big Daddy.

 

Adriana Linares: I am going to need a picture of Big Daddy to post in the show notes.

 

Okay, okay, so we talked about balance statement, income statement, detail general ledger, bank reconciliation report, which shows me if I am one penny off and then my job or the accountant’s job is to get that to zero.

 

Amanda Moore: Right. And your bank reconciliation ties your general ledger to your bank statement. So that’s your piece that shows you that everything is working out. If that ties to zero, then you know that what’s on your books agrees to what’s in the bank.

 

Adriana Linares: Okay. Wow, I feel like I am ten times smarter than when we started.

 

But before we move on to our next segment, we are going to take a quick break to hear a message from some sponsors.

 

[Music]

 

Adriana Linares: If you are missing calls, appointments and potential clients, it’s time to work with Nexa Professional. More than just an answering service, Nexa’s virtual receptionists are available 24×7 to schedule appointments, qualify leads, respond to emails, integrate with your firm’s software and much more. Nexa ensures your clients have the experience they deserve. Give them a call at 800-267-9371 or visit them at nexa.com/podcast for a special offer.

 

[Music]

 

Imagine what you could do with an extra eight hours per week? That’s how much time legal professionals save with Clio, the world’s leading practice management software. With intuitive time tracking, billing and matter management, Clio streamlines everything you do to run your practice from intake to invoice. Try Clio for free and then get a 10% discount for your first six months when you sign up with the code NewSolo10, that’s NewSolo10 and do that at clio.com, clio.com.

 

[Music]

 

Adriana Linares: Okay, so in our last section we talked about four important reports that every lawyer should ask for and look at and review at least once a month, but if you can do it more often, great, but try not to skip too many months; that was the balance sheet, income statements, detailed general ledger, bank reconciliation report and the bank statement. That’s five?

 

Amanda Moore: That’s five.

 

Adriana Linares: Oh rats, I can’t count. We should not drink wine and do these podcasts at the same time.

 

All right, five important reports.

 

Amanda Moore: Thank goodness there is a accountant here.

 

Adriana Linares: Oh wow, you can count.

 

Amanda Moore: Right?

 

Adriana Linares: Right. I do math like lawyers do, and I am going to round it up and round it down, four was rounded down from five.

 

Amanda Moore: Great.

 

Adriana Linares: Okay. Next question, and those are all reports I actually get out of my likely QuickBooks or whatever my accounting software is, they are actual reports?

 

Amanda Moore: Yeah. Well, your bank statement, you can see offline and then the other ones they come off of QuickBooks or whatever accounting software you are using.

 

Adriana Linares: Okay, I am going to go back to a basic question that I should have asked you before, but when we are starting a new company in a new law firm, one of the first questions that you get asked, either if you are going through the setup process or working with an accountant is, do I want to be cash or accrual basis? Can you talk to me like I am four years old and tell me what that means?

 

Amanda Moore: Okay. Well, your cash basis financial statements will show you, for instance, on your income statement only the cash that’s come in during the month and only the cash that’s gone out.

 

So if you build a client and you haven’t collected yet in March, then at the end of March when you run that financial statement, even though you earned that money, you haven’t been paid, it’s not going to show up on your March revenue, because you haven’t received it. When you receive that cash, then it will be revenue.

 

Adriana Linares: How do most businesses go?

 

Amanda Moore: For their bookkeeping purposes, it depends on the industry, but most of them are on the accrual method, which means that if they have any receivables out there, if they have billed their customers but they haven’t received the cash yet, the revenue in the month that they earn it will show up on their financial statement.

 

And then the same thing with bills, if they have received a bill, but they haven’t paid it yet, then it will show up as an expense, even though they haven’t paid it.

 

Adriana Linares: I mean obviously a lawyer setting up a new law firm would have some counsel from an accountant, but just quickly explain the difference between the two and chances are that they would go accrual basis.

 

What types of services or companies go cash, like just to give us an idea, drug dealers?

 

Amanda Moore: None that I work with. Drug dealers would be an example.

 

Adriana Linares: Yeah. Okay, like let’s say they use QuickBooks.

 

Amanda Moore: A lot of people prefer cash, just because they want to know and they don’t have a lot of receivables, any business that doesn’t have a lot of receivables or they get paid immediately. I have an interior decorator that as soon as she sends out a bill it’s paid. She likes cash basis, because there is very little outstanding payables or receivables.

 

Adriana Linares: I bet every single lawyer listening to this would love to have that as the setup.

 

Amanda Moore: As soon as they bill.

 

(00:29:59)

 

Adriana Linares: As soon as they bill they get paid or they bill first and then they start working.

 

Okay, so let me ask you another question, chart of accounts, what does that mean?

 

Amanda Moore: It is a chart or a list of your accounts.

 

Adriana Linares: That’s crazy.

 

Amanda Moore: Yeah, all of your balance sheet and income statement accounts.

 

Adriana Linares: You accountants are not very creative in their naming conventions. The reason I brought that up is this, I have, and I don’t know if listeners have noticed, but I am using this a lot as a personal consulting session for my own QuickBooks. But I travel a lot and I fly on a lot of different airlines; I don’t really, but let’s pretend that I do, and oh, here is one thing I definitely do, I stay in a lot of different hotels and I eat in a lot of different restaurants.

 

So when I started a million years ago — not a million, 14 years ago with my little company, I am very anal and very un-detail-oriented, which is weird, because it’s hard to be anal and not detail-oriented. But what I didn’t want was my chart of accounts getting like jammed up with Chick-fil-A, Ruth’s Chris, Holiday Inn, Hampton Inn, Ritz-Carlton, I didn’t want every single restaurant, company, hotel, car listed on my chart of accounts.

 

I am getting the shake of disapproval, the accountant is disapproving of — she doesn’t even know what I am going to say, she is already disapproving.

 

Amanda Moore: Go ahead, finish.

 

Adriana Linares: So they are all called, I have one account restaurant, one account hotel, does the IRS really care which hotel I stayed at, does it really care which restaurant I ate at, or can I just — it’s car rental, it’s toll, it’s parking, I don’t put whether it’s paid by toll or parking, I just — it’s all very big picture, is that bad?

 

Amanda Moore: No, not for you.

 

Adriana Linares: Okay.

 

Amanda Moore: Because it works for you and you know that — you know what’s in those accounts.

 

Adriana Linares: Because I am a solo. But the thing is Bank of America, who is my bank account, when you look at the notes, it tells you, like I just let Bank of America bring all the information into QuickBooks and then I match it. I go, oh yeah, I was at the Hampton Inn, but I put the payee as hotel.

 

Amanda Moore: I think where you probably run into a problem is, if you owned a small firm and you had an account, like we were talking about before, if your supply account is too large and you want to see what happened in your supply account, under your scenario —

 

Adriana Linares: Really very creative scenario.

 

Amanda Moore: –you would have a long list of checks or expenses that say supplies, supplies, supplies.

 

Adriana Linares: Oh yeah. Oh, that’s another good one, it’s never office depot or staples, it’s just office supplies.

 

Amanda Moore: Right, so you really would not know what runs through your general ledger or your accounts. If you want to know what went through your accounts, then you need to have the vendors listed.

 

Adriana Linares: The vendors listed.

 

Amanda Moore: And that really doesn’t have to do with your general ledger or your chart of accounts, because your chart of accounts is just a list of the accounts, which is like supplies, travel, postage, what you are talking about are vendor, vendor names, so you don’t have vendors entered into your accounting systems.

 

Adriana Linares: This seems like a lot of unnecessary detail.

 

Amanda Moore: I would recommend doing, because otherwise if you look at your financial statements and you want to know what’s running through there, you have no idea.

 

Adriana Linares: So this would be the type of thing that if I was a small law firm and I had a bookkeeper, I would not encourage this because I wouldn’t know which of my — it could be easier for me to keep track of expenses by more than one person with more detail.

 

Amanda Moore: Right.

 

Adriana Linares: Fine, garbage in, garbage out. I understand we want good detailed information going into —

 

Amanda Moore: Our books, right.

 

Adriana Linares: Okay, while you scold me, I am going to take a minute so that we can hear a couple of more messages from some sponsors.

 

[Music]

 

LAWCLERK is where attorneys go to hire freelance lawyers. Whether you need a research memo or a complicated appellate brief, our network of freelance lawyers have every level of experience and expertise. Signing up is free and there are no monthly fees. Only pay the flat fee price you set. Use rebate code NEWSOLO to get $100 Amazon gift card when you complete your next project. Learn more at lawclerk.legal.

 

[Music]

 

CourtFiling.net, your solution for electronic filing in California, Illinois, Indiana and Texas. CourtFiling.net provides a better e-filing experience so you can spend more time helping clients. Because they know that work sometimes happens after hours, CourtFiling.net offers 24/7 phone, email and chat support. Visit them at courtfiling.net to receive 30 days of unlimited free electronic filings and see how you too can e-file court documents with ease.

 

Okay and we are back. During the commercial breaks I was getting scolded by Mandy about my accounting practices, which I was just thinking, one of the smartest things I ever did was take a three day QuickBooks class when I first started my company.

 

(00:35:02)

 

You know, how you get the advertisements for those, and you might not get them, but I guess I am talking to listeners, you get these advertisements in the mail for QuickBooks training is coming to your city, and it lists like Tampa, Orlando, or it would have had New Orleans or Baton Rouge, and I actually went, I think — I mean this was 14 years ago, but I probably paid, I don’t know, $595 or $600 and it was worth it.

 

And it just helped me. Again, I am not a great QuickBooks user, but I was able to not only get some of my questions answered, but also hear other people’s questions, which I think are always helpful. So I guess I would encourage anyone who is listening that if you get that opportunity, again, and especially as either a small business owner, a new business owner, that just seems like a no-brainer and I am sure you can do it online these days.

 

Amanda Moore: There are great tutorials online.

 

Adriana Linares: Yeah. I mean I figured out things like, I don’t know.

 

Amanda Moore: You are truly the only person I have ever heard of who has done that.

 

Adriana Linares: Well, I guess that makes me a little nerdy, but I really — I didn’t want to be that person that years later was going to say, I have no idea, I feel like I have no idea, but I have got a little bit. I have better than nothing.

 

Amanda Moore: And still you are not listing your vendor names.

 

Adriana Linares: Okay, back to that, I wish I hadn’t confessed to this whole little thing.

 

Amanda Moore: I am kidding, it’s fine, it’s actually fine. She is in complete control of everything.

 

Adriana Linares: Well, I am the bookkeeper, right?

 

Amanda Moore: That’s the important thing.

 

Adriana Linares: What are the most frequently asked questions you get when people come to you and they say okay, well, I am brand new, what do I need to know, give us some just pearls of wisdom and suggestions? None, you have got none? There can’t be any?

 

Amanda Moore: What was the question?

 

Adriana Linares: Most frequently asked questions about accounting, like what do I need to know to be a good business owner in my accounting world? I mean I know you have given us a lot of nuggets, but what are other frequently asked questions?

 

Amanda Moore: I rarely get asked a question; it’s more an instance if something is wrong.

 

Adriana Linares: And one of those things.

 

Amanda Moore: They have looked at their financial statements, somehow, someway they have received a copy of a balance sheet or income statement and the numbers look wrong to them and they don’t understand what they are looking at. So they call and they say can you fix this.

 

Adriana Linares: So you fix bad books?

 

Amanda Moore: Yes.

 

Adriana Linares: And then what are the elements of bad books, un-reconciled accounts I would guess?

 

Amanda Moore: Un-reconciled accounts. A lot of times it’s when business owners look at their accounts and there will be a negative cash balance or there will be a cash balance that’s super high and they just know it’s not right, and that’s because the account has not been reconciled properly. Or at one point it wasn’t and then it has been recently, but that discrepancy was never fixed.

 

Or they may look at their accounts receivable, because usually in the back of your head you know about what your receivables are, you know who owes you. So they will look at that and they will see the number is completely different than they think. It’s things like that. They just intuitively know about what things should be and then they look at their statements and they know they are way off.

 

Adriana Linares: And I am thinking when you just said, in the back of their heads they know what an accounts receivable — their accounts receivable should look like, but again, if you are a small law firm and you have got three or four lawyers working for you, maybe even paralegals that are billing, you might not know that number.

 

But if it’s astronomically high or astronomically low, that would set off some sort of flare, an alert in your head, and more relevant to my technology world, is a lawyer will call me and they will say, you know, I don’t know anything about IT and technology, but I don’t think I should be paying $18,000 to move my law firm to new servers and we are only three people.

 

Amanda Moore: Right.

 

Adriana Linares: Right? So they could call me and I could say oh, only $18,000, that’s nothing, but they are right. They know or you know that there is just certain numbers that seem reasonable and certain numbers that don’t. And I guess what we are saying is listen to your gut sometimes and it doesn’t hurt to pick up the phone and call your tax professional or your accounting professional and say, this just doesn’t look right to me, or call your bookkeeper in and say this doesn’t look right to me. And I feel like sometimes they are just so busy, they don’t do that.

 

Any other red flares that we should keep an eye out when it comes to our accounting? How do we keep an eye on our checks or our money that somehow someone isn’t putting a little extra in their own pocket, how do we prevent that?

 

Amanda Moore: You look at your detail general ledger.

 

Adriana Linares: There it is.

 

Amanda Moore: It will show you in detail exactly what’s going out of all of your expense accounts, all of your accounts, not just your expense accounts, and then also getting a hold of your bank statement because your bank statement does not lie.

 

Adriana Linares: Right.

 

Amanda Moore: I mean copies of your canceled checks will show you exactly who they were written to and for how much, so just glancing down your bank statement every month, even if you don’t have time to look at your general ledger or any of your QuickBooks accounts.

 

(00:40:05)

 

Adriana Linares: Should lawyer or law firm have a bookkeeper? Should they have an accountant, like how do — what’s the standard, here is what you should have as a small business owner helping you?

 

Amanda Moore: A bookkeeper.

 

Adriana Linares: Okay.

 

Amanda Moore: I think it’s very important. A lot of I think multi-partner firms have bookkeepers, it’s a necessity, but a lot of sole proprietors may not. They think they can do it on their own, which some of them can, but I think that it’s really important to have a bookkeeper, because if they do find the time to do the bookkeeping themselves.

 

Adriana Linares: The lawyers?

 

Amanda Moore: Right. And hopefully it would be accurate, but they might not have the time to do it properly. And then if they do have the time to do it properly, they are spending a lot of time on bookkeeping instead of building their business or working on cases. I think that their time can be better spent working on their business.

 

Adriana Linares: The entrepreneurial — E-Myth stands for the entrepreneurial myth. If you haven’t read these books or anything, they are simple, they are short, they are inspirational and there is one specifically for lawyers, I remember seeing a few years ago.

 

But it’s that idea of wow, you are a great baker, you should open a bake shop, and then it turns out that those people aren’t really good business owners. And I think with lawyers, a lot of times — anyway, let me back up, the message in that book is you should be spending time working on your business, not in your business.

 

Amanda Moore: Exactly.

 

Adriana Linares: And that’s why I think it’s important to encourage them and remind them, all small business owners, but of course we are talking to lawyers here, to find someone that you trust, that isn’t going to charge you an arm and a leg, and we already said bookkeeping should cost somewhere around $25-50 an hour, probably based on your region, your needs, and if you are looking for that person, ask your colleagues, I would guess. Of course you can Google local companies that do that, but I always think that talking to colleagues is probably one of the best ways to find that person.

 

Amanda Moore: Or your tax professional is a great person to ask.

 

Adriana Linares: Because they will recommend, or if they don’t have it in-house, then —

 

Amanda Moore: Right, they can recommend.

 

Adriana Linares: They can recommend. All right Mandy, before I let you go, I have just received four questions from an anonymous source practicing law in the corner of the room, who has been listening to us record this podcast and was curious enough to ask some questions, which I love, because he is a solo practitioner and these are like legit questions.

 

Okay, so let’s see here. If I have a professional corporation or an S Corp, say XYZ, Inc. of Florida or a California professional corporation and I am a sole owner, how important is it to separate personal expenses from business expenses versus basically just using my business checking card for just about everything and calling it a business expense?

 

I feel like I could have asked that question.

 

Amanda Moore: It’s very important.

 

Adriana Linares: Wow. The accountant is starting to sweat from her pits again with these sorts of questions. The accountant is upset. She is rubbing her palms on her knees going oh my God, is this a real question, do people really do this?

 

Okay, Mandy, this is a scenario, if you will.

 

Amanda Moore: Just for simplicity purposes of keeping track of your books, keeping track of deductible expenses, it’s important to keep a separate credit card. You will have your separate credit card statements.

 

Adriana Linares: What about I take my wife out to dinner, but I used my business credit card to pay for it, do we frown upon that; she is not my office manager?

 

Amanda Moore: Is she a prospective client?

 

Adriana Linares: She is not.

 

Amanda Moore: She is not.

 

Adriana Linares: But we did talk about business.

 

Amanda Moore: That would be frowned upon.

 

Adriana Linares: Okay, frowned upon. So the answer to this is it’s better to keep them both separate.

 

Amanda Moore: It is.

 

Adriana Linares: Okay, fine, we hate those answers. What are my greatest risks of getting audited and then parenthetically I don’t want to get audited?

 

Amanda Moore: You want to file your taxes and you want to pay your taxes, those are very important.

 

Adriana Linares: Oh, that reminds me, what about paying quarterly employment or what if I don’t have any employees, I am a solo, do I need to pay some quarterly something?

 

Amanda Moore: You would make estimated tax payments hopefully and a lot of people do not, sadly, myself included.

 

Adriana Linares: But then we end up having to pay a giant chunk next year?

 

Amanda Moore: Right, right. I think it’s important to do it, because a lot of times there are surprises at year end and you hate to be caught in that situation where you have to pay a huge lump sum and come up with the money.

 

Adriana Linares: Oh my God, haven’t we all had that problem?

 

Amanda Moore: Yeah, so it’s easier just to go ahead and make it, even if it’s a minimal amount, if you can’t make the amount that your CPA suggested you make, at least send something in.

 

(00:44:56)

 

Adriana Linares: And you said my CPA, not my bookkeeper, or would my bookkeeper be able to make recommendations on what they think I should pay?

 

Amanda Moore: I would use the advice of your CPA, your tax preparer.

 

Adriana Linares: So here is a side question that just came in from the anonymous attorney practicing law in the corner. Also, if I am a solo with the professional corp, should I pay myself a salary or just keep all the profits?

 

Amanda Moore: I would suggest paying yourself a salary, at least 50% of those profits.

 

Adriana Linares: Okay. And then can I pass through the other 50% as a draw?

 

Amanda Moore: As a show, yes, as a draw or show or distribution, yes.

 

Adriana Linares: Do you know how I was able to ask that very smart question?

 

Amanda Moore: No.

 

Adriana Linares: Because that’s what I do.

 

Amanda Moore: Very nice.

 

Adriana Linares: See, that QuickBooks class paid off.

 

Amanda Moore: Was it your QuickBooks class or your CPA?

 

Adriana Linares: Maybe my CPA.

 

Amanda Moore: You don’t want to take it all as a show or distribution because that is a red flag.

 

Adriana Linares: Okay.

 

Amanda Moore: You could possibly get out there.

 

Adriana Linares: Which moves us back to, how do I prevent from — prevent myself from being audited and that is you don’t take 100%.

 

Amanda Moore: Pay some employment taxes.

 

Adriana Linares: Pay some employment taxes, okay.

 

Well, Mandy, this has been awesome and very helpful and I know — I feel like you probably think, maybe you don’t, because you do this all the time, that people have these answers and we should know because we are business owners and especially because our listeners are often lawyers, but the truth is, these are the things they learn in law school, and as I said, when we started, sometimes they are either new or they have just been working under the umbrella of a large law firm where these things didn’t matter, everything just got done. So I feel like this has been really helpful and I really want to thank you, because — have you stopped sweating?

 

Amanda Moore: I think I have, yes, thank you.

 

Adriana Linares: If I am attorney in California, can I call you and hire you?

 

Amanda Moore: As your bookkeeper, yes, I can come help you fix your financial statements, if you feel like your bookkeeper has gone astray, but I cannot audit your books.

 

Adriana Linares: And that’s because accountants, like lawyers, are licensed per state?

 

Amanda Moore: Correct.

 

Adriana Linares: So you should find accounting — a tax professional and an accounting professional in your state to help you.

 

Amanda Moore: Right. If you need a CPA, then they need to be certified in your state.

 

Adriana Linares: But bookkeepers, again, they don’t have to necessarily be licensed, you just want to find someone who is trustworthy and experienced. It’s always great to be able to find someone who has worked with law firms as well. So again, just turn to your peers and ask for some help.

 

But if you are in Florida and you are looking for some help, Mandy is your gal. She is amazing and wonderful, and especially if your favorite thing is those homeowners association audits, ooh, that is some sexy work right there, Mandy Moore.

 

Amanda Moore: Fun.

 

Adriana Linares: Go get that 10 key out and a bottle of wine. Tell our listeners how they can get a hold of you if they are interested in reaching out to you, and I do also want to say, we can have Mandy back almost any time, because she is one of my neighbors. So if you have more questions and you just really want some general advice, I would never put Mandy on the line with difficult questions or something that might be an ethical question, but if you do have some more questions, email them to us and we will compile some questions and get Mandy back on and really get your questions answered for you.

 

But if they don’t want to email me and they either want to email or call you, how can they do that?

 

Amanda Moore: They can email me at AmandaCPA@iCloud.com.

 

Adriana Linares: All right. Well, thanks so much Mandy. I really appreciate you stopping by. It’s always great to have my good friends on who are always so smart and helpful.

 

Oh, I have got an idea. Let’s do a new segment on New Solo called Make Mandy Sweat. It’s pretty funny to watch you sort of get all nervous and jacked up about these accounting questions Mandy.

 

So listeners, if you have some basic accounting questions or scenarios that you want to have answered by Mandy and really make them complicated, maybe we can make her sweat some more, send those questions into New Solo at legaltalknetwork.com. We will collect a few questions and have Mandy come back on and just get her sweating a little bit, but also helping us at the same time.

 

Thank you for listening to New Solo on the Legal Talk Network.

 

If you liked what you have heard, we would love for you to subscribe, rate and give us a good review on iTunes. We will see you next time.

 

And remember, you are not alone, you are a new solo.

 

[Music]

 

Outro: Thanks for listening to New Solo with host Adriana Linares. Tune in again to learn more about how to successfully run your new practice, solo, here on Legal Talk Network.

 

[Music]

 

The views expressed by the participants of this program are their own and do not represent the views of, nor are they endorsed by Legal Talk Network, its officers, directors, employees, agents, representatives, shareholders, and subsidiaries. None of the content should be considered legal advice. As always, consult a lawyer.

 

[Music]

Continue Reading