I hope you’ve been bragging about “income” and not your “revenue”. That is to say… IF you’ve been bragging at all!You went and got that expensive degree to practice law, not to be sitting at home crunching numbers and trying to figure out why your income isn’t what you thought it would be. Nevertheless, you find yourself scratching your head and trying to figure out why you didn’t make as much as you thought, with all that money flowing in.’  

This is a classic case, pardon the pun, of not knowing the difference between Income and Revenue. In fact, it’s one of the Five Pitfalls of Legal Accounting shared by Dr. Rick Kabra, who said:

“When an invoice is paid, a portion of the revenue must first be allocated to incurred costs. This portion must be recorded separately and not considered income. Firms that have difficulty in separating revenue that covers incurred costs from their actual income will have inaccurate books, battle compliance issues, and experience difficulty recognizing which cases have become more valuable to the firm.” If you’re brain needs a more definitive way to think about it, try this:

Revenue – Expenses = Income

You receive money, but you’re also responsible for various types of expenses. Some of those expenses are simply overhead/operating costs and some may be directly connected to the work you’re doing for your client. Soft costs and hard costs.  The latter are considered liabilities and are often thought of as expenses you are under obligation to pay.   There is so much more behind this mathematical formula.  Do you want to delve in deeper?  Our accounting firm can provide that with some deep dive advisory services. Do you want to know how you stand up to your nearest competitor?  Using QB Advanced, we have the KPI’s (Key performance indicators) for you!  Our firm will guide you and advise you to plan for a profitable future!  

In the accompanying video, I explain the soft costs, hard costs, admin costs and how to know which is which and how to use LeanLaw to its full capacity to enter those for client matter billing.  

If you read the article posted to our blog about Trust Accounts you know that good law firm accounting practices tell you to “keep a separate ledger for each client”. Combine that with our explanation of Income, and you’ll not only have a better sense about your overall income, but you’ll have a better sense of your income per client. This will prove helpful if you’re trying to elevate your position in your law firm… but that’s a subject for another time.

Are you still working in both fields, Lawyer AND Didn’t-Wanna-Be-An-Accountant?

Click the link to make it stop!!!