Get Your Financial House in Order Now

thFor the last few years I’ve shared an
annual tradition with you: getting financial records organized for year-end.

This entails gathering up receipts, identifying deductible expenses, updating your accounts, running reports, and possibly pre-paying some 2017 bills.  Whew!

Fight the Urge to Procrastinate

With all the responsibilities that vie for our attention this time of year, it’s easy to push aside the task of gathering, organizing, and updating financial records.  Don’t succumb!

Getting organized for year-end is an absolute necessity – especially for the sole practitioner.

Step 1: Get Started

If needed, begin with a little background reading from the experts:

General Tips on Tax Preparation

Tax Deductions FOR SOLOS AND HOME-BASED LAW PRACTICES

Step 2: Learn How to Organize Tax Records

Step 3:  Begin the Process by Chipping Away at Organization and Prep

I don’t recommend a marathon session of tax organization and prep.  The only time it makes sense to do this is if you’ve procrastinated and you’re up against a filing deadline. The point here is to avoid that.  It’s too stressful!  And as we all know: when you’re up against a deadline the odds of making a mistake rise exponentially.  Let’s not go there.

Instead, open your calendar and schedule some dates to start gathering and organizing records.  30 or 60 minute appointments will allow you to chip away and make progress:

First appointment

Assuming your accounts are reasonably up to date (income and expense entries are current), do a quick check. Does it make sense to pre-pay 2017 expenses [bar dues, professional liability coverage, rent] or contribute to your IRA/retirement fund? Make this assessment early to take advantage of 2016 deductions.

Second appointment

Prepare to organize your records.  Physically gather receipts.  If necessary, schedule follow-up appointments to finish the process.  If your records are digital, use this time to pull all receipts into one 2016 expense folder.  If you have unscanned receipts, catch up on your scanning.

Third appointment

If you are paper-based, label a manila envelope “Personal Expenses.” Start sorting your paper receipts.  For now, anything that is a personal expense goes into the “Personal Expenses” envelope to be dealt with later.  If your records are digital, create a file folder labeled “2016 Personal Expenses” and segregate personal receipts.  Once you’ve achieved this basic separation, start organizing your business expenses.  This can be done a variety of ways – see the reading above.  While date order is good, it is preferable to sort by expense category first, then by date.  If necessary, schedule follow-up appointments to finish the process.

Future appointments

You get the drift. Even the most robust procrastinator can generally commit to increments of 30 or 60 minute appointments.  Keep moving.  Anything you do helps advance the cause.

Step 4: Jumping Ahead to the CPA

If you already work with a CPA, hallelujah!  If your CPA is like mine, he or she will automatically send you a tax organization packet, which will go a long way toward helping with the steps above.

You Do your own taxes?

I know some of you are stubbornly independent, as I once was, and you prepare your own taxes, as I once did.  Please: at least contact a CPA for a ballpark estimate of what it would cost to delegate this task.  What can it hurt?  You can still prepare your own taxes if you prefer.

But my taxes are simple!

Kudos! Guess what?  The cost to prepare your return will be nominal.  If your taxes are complex, anything you pay a CPA will be well worth it.

I have used CPAs for business, personal, and trust-related tax preparation and have never been sorry I did.  The prep work is enough for me!  Try it at least once and see what you think.  I’ll bet you free admission to one of my future CLEs that you won’t go back to doing your own tax returns.  Select the Contact page on the menu above to take me up on this offer.

A Quick Thought About Apps

The tech-savvy among may you may be curious about apps, so here are two suggestions: 7 of the Best Apps to Scan, Track, & Manage Receipts and Best Free Finance Apps for the iPhone and iPad.  (The latter is my list of favorites.)

Parting Thoughts

Get started now by scheduling those appointments on your calendar!  I promise you that doing a bit here and there makes the process less overwhelming.  Good luck!

All Rights Reserved – Beverly Michaelis [2016]

How to Succeed in Practice

Succeeding in practice requires momentum, courage, and hard work.  No one knows
that better than a solo practitioner or small firm lawyer.Motivation1

Whether you’re starting out, retooling, or want to make a change, consider this sage advice from Ann Guinn, one of the presenters at the Oregon State Bar Solo & Small Firm Conference.  She may just motivate you to get moving!

All Rights Reserved 2016 Beverly Michaelis

Postscript

For related content with a greater focus on the financial side of practice see this post on Storify.

 

The 7 Golden Rules of Collections Revisited

This classic post bears repeating.th (1)

In the annals of professional liability, there is one statistical truth: sue a client to collect fees and odds are the client will sue you for malpractice.

How can you avoid this dilemma?  Be proactive!  Develop policies and procedures designed to preserve client relations and avoid collection problems before they start.  In short, follow the seven golden rules of billing and collections:

  1. Always take the time to discuss fees, costs, and billing practices.  Most nonpaying clients who file retaliation suits or malpractice counterclaims do so because they never understood what the lawyer’s services would cost.
  2. Never leave home without a written fee agreement.  Be specific and complete.  Your agreement should: (a) specify the scope and timing of services; (b) describe what the client is expected to pay for and when; (c) explain billing practices; (d) identify what will occur if payment is not timely made.  Losing a potential client who refuses to negotiate and agree to a comprehensive fee and engagement agreement is a small price to pay compared to defending yourself in a malpractice claim or disciplinary proceeding.
  3. Consider alternative fee arrangements – flat fees, fixed fees, unbundled fees, evergreen retainers, or “last month’s rent.”  Clients cooperate more fully when they are financially invested in their case.  If the client is unwilling to commit financially, the matter quickly becomes your problem rather than the client’s.
  4. Keep detailed records documenting time spent and submit itemized bills
    to clients on a regular basis.  Inconsistent billing practices disrupt firm cash flow, infuriate clients, and make collection more difficult.
  5. Be a smart biller:  (a) review “pre-bills” and statements carefully; (b) if  you make a mistake, correct it quickly and accurately the first time; (c) send statements before clients receive their paychecks – usually just before the 15th and again at month end.  If you serve corporate clients, send bills in a manner and format that works for the accounts payable department; (d) always include a due date on all statements (most clients prioritize bills based on due date); (e) offer a carrot instead of a stick.  In lieu of late fees or interest, offer clients a discount if payment is received within 10 days of the billing date.
  6. Do not allow outstanding fees to accumulate during the course of representation.  As soon as a payment is missed, call the client.  Get to the root of the nonpayment.  Is the client dissatisfied?  If a client becomes seriously delinquent, terminate the attorney-client relationship and withdraw from representation if possible.  Re-read last week’s post and comply with all provisions of Oregon RPC 1.16 as well as applicable court rules.  Read more here about the do’s and don’ts when ending representation.
  7. Offer to arbitrate fee disputes through the Oregon State Bar’s Fee Arbitration and Mediation Program or consider other alternative dispute resolution methods.

If you decide to sue a client for fees, consider the following:

  • Will a judgment be collectible if obtained?
  • Do you stand to gain or lose a substantial amount of money?
  • Are there any grounds upon which the client can credibly dispute the debt or any part of it?
  • Have you really listened to your client’s side of the dispute?
  • Was a good result obtained in the underlying case?
  • Has an uninvolved, experienced lawyer reviewed the file for possible malpractice?
  • Will a law suit result in bad publicity reflecting negatively on you or your law firm?
  • Have you offered to arbitrate, compromise or meet the client part way on the amount due?

Most collection problems can be averted at the outset of representation.  A frank discussion of fees, finances, and billing procedures will greatly reduce the possibility of disputes.

[All Rights Reserved 2016 Beverly Michaelis]

Doubling Down on Your Bill When the Client Doesn’t Pay

 

We’ve all been there.  Non-paying clients can be incredibly frustrating, especially if you went out of your way to offer a reduced rate or special payment plan.  But before you resort to punitive measures, take a moment to think it through.

  • A literal doubling of your fee is likely to be challenged as excessive.  Review Oregon RPC 1.5.
  • Consider whether the proposed punitive action will make a difference.  Do you truly believe that doubling your fee will motivate the client to pay?
  • Collections can be a landmine of legal traps and pitfalls.

What Should You Do If the Client Doesn’t Pay?

In the case of non-paying clients, it may be appropriate and necessary to withdraw. If so, take care to abide by your ethical responsibilities.  If you represent the client before a tribunal and must file a formal Motion to Withdraw, read and understand Oregon Formal Opinion No. 2011-185 – Withdrawal from Litigation: Client Confidences.  If you have any doubt about what you can or cannot tell the court, seek advice from the Oregon State Bar General Counsel’s office or contact a lawyer colleague who specializes in ethics defense.

You should also consider ordering one (or more) of the free CLEs offered by the PLF on managing law firm finances:

  • 50 Shades of Green: Building a Profitable Solo or Small Firm Practice
  • Building and Maintaining a Profitable and Efficient Law Practice 
  • Increasing Revenue: Updated Strategies for Attracting New Clients and More Effectively Managing an Existing Client Base 
  • Money Matters 

These CLEs will help you to:

  • Banish personal habits that cause you to under earn
  • Identify profitable practice areas
  • Analyze overhead, liquidity ratios, budget, turnover, and realization rates
  • Establish effective billing practices
  • Reduce accounts receivable
  • Develop case and client selection skills to eliminate payment problems

Visit the PLF Website for details.  Select CLE > Past CLE.

[All Rights Reserved 2016 Beverly Michaelis]

 

Should You Barter Your Legal Services?

Bartering is “… A method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money.” [Wikipedia].

For a lawyer, bartering might consist of swapping services with someone like a Web designer. In exchange for setting up a business entity, you receive a new Website.

What are the Ethical Implications of Bartering?

When a lawyer accepts in-kind payment for legal services, whether the payment consists of the client providing services to the lawyer or an ownership interest in the client’s business, the lawyer is going beyond simply establishing a contract for legal services, and instead is doing business with a client. When entering into a business transaction with a client, lawyers must follow the requirements of RPC 1.8(a).  [Excerpted from Alternative Pricing Models: What’s in a Fee?]

This means:

  • The terms of the agreement must be reasonable and fair.
  • Your fee agreement must be in writing.
  • You must obtain the informed consent of your client to proceed (usually contained within the fee agreement).
  • You must recommend that the client consult with another attorney in deciding whether consent should be given.
  • You must fully disclose the details of the business transaction and each party’s role (part of informed consent).

Bartering and Professional Liability Exposure

Prior to 2016, Oregon lawyers were required to provide the Professional Liability Fund [PLF] with copies of business transaction disclosure letters or risk exclusion of coverage. The reporting requirement to the PLF has been removed for plan year 2016. Lawyers are no longer required to provide the PLF with copies of disclosure and consent letters when engaging in business transactions with clients.  As a courtesy, the PLF continues to offer a sample disclosure letter on its Website.

Beyond the Obvious Ethical Traps and Liability Exposure

Barter exchanges have practical implications.  Ask yourself:

  • If you do not complete the work for the client, how will you “refund” a portion of your “fee?”
  • Are you prepared to keep the proper records?
  • Do you understand the tax requirements for barter exchanges and the penalties for failure to report?

If you plan to barter with a client in exchange for legal services, be prepared:

  1. Read Alternative Pricing Models: What’s in a Fee? by Helen Hierschbiel.
  2. Obtain a copy of the sample disclosure letter on the PLF Website.
  3. Understand how your professional liability coverage works.  The PLF Primary and Excess Plans are available on the PLF Website.  Call the PLF with coverage questions: 530-639-6911 or 800-452-1639 (Toll-Free in Oregon.)
  4. If you’re still foggy on the ethics, contact Oregon State Bar General Counsel.
  5. If you need help with tax-related recordkeeping and reporting, speak with your accountant or a tax lawyer.
  6. Learn the ins and outs of bartering – if you are trading legal services for a new Website, verify that your potential client can do the job.  Check out these informative sites and posts: BarterQuest – when, where, and how to barter; How to Barter AnythingHow to Barter for Goods & Services – Tips and Methods to Trade; and Barter 101: Trading For Services.

Nothing prohibits bartering with a client for legal services, but like so many alternative fee approaches, be sure you know what you are doing before you enter into an agreement you might regret.

[All Rights Reserved 2016 Beverly Michaelis]

Postscript

For more on the topic of engaging in business with clients, see Too Good to Be True: The Ethics of Business Transactions With Clients.