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Trust and Escrow accounts, IOLTA accounts and more
As the one responsible for overseeing and ensuring the financial health of your firm, you have fiduciary responsibilities that others do not. If you are also a practicing partner, these duties extend beyond your client responsibilities. Although you may employ a part-time or full-time bookkeeper or accountant, the onus of financial statement preparation, monthly accounting and cash management duties is yours.
It can be a lot of work to manage billings, even with each associate or partner tracking their hours. The additional managing of a separate client trust or escrow account adds to the complexity. Recognizing these resource limitations, many firms choose a trusted partner to provide financial guidance.
Choose your financial partner wisely
Because certified public accountant (CPA) firms help with quarterly or yearly reporting, they are often the first financial partner firms consider. However, due to the stringent banking requirements tied to managing an IOLTA or escrow account and transferring funds from these accounts into an operating account, a wise financial partner for legal firms to consider partnering with would be a bank or an entity that is strongly affiliated with one.
As noted by the Wall Street Journal, the best banks offer personalized attention, higher-quality service, lower costs and more localized decision-making without scandals. For fee-conscious firms, lower costs with higher quality will help support the reputation you have or that you're building in the market.
Your bank should offer technology platforms such as those that support remote deposits and robust online banking. These options are important, particularly for those with few non-legal staff, as it minimizes time spent on mundane tasks such as running to the bank. Furthermore, according to LexisNexis, you must ensure that your bank drafts any fees on trust accounts from the firm's operating account, including bank charges, overdraft fees and credit card merchant account fees.
Having a financial partner that has an escrow expert in-house who is on state bar-approved lists for financial institutions and has significant experience helping firms navigate between operating and multiple trust accounts will provide much-needed support in running your firm.
Leverage your financial partner
According to the American Bar Association, equity partners' capital contributions must be tracked on the balance sheet, since they would likely be owed to them should they leave the firms. Most firms pay out capital contributions, which are generally deposited into operating accounts, since this capital funds operations over several years. The actual payout terms will depend on the language in your firm's partnership agreement. The right financial partner can facilitate appropriate management of these contributions and payouts.
Look for a firm that will provide you with more financial access so that you can obtain increases in credit lines to cover larger clients or expansion loans to build out your current location, open new ones or increase your virtual footprint.
Understand the true meaning of "partner"
According to Forbes, to ensure a great partnership, clearly communicate your expectations. As you grow, your firm will encounter more issues. For example, as scammers become more savvy, it is imperative that law firms ensure that the checks and wires they both send and receive are sent to and received by the appropriate parties. Hence, your financial partner must have strong fraud protection protocols in place. Tools like positive pay services and secure mobile access to your business finances, providing you with helpful alerts to keep your operations running smoothly. Work with your banker or advisor to forecast the need for term loans or line of credit increases for better credit management. Your trusted advisor can help enable you to fully leverage the limited resources and personnel you may have to maximize the value you provide to your clients.