When it comes to the costs of running a law firm, we can break down the expenses that a typical Law Firm will see into two significant categories: hard and soft costs.
Starting with hard costs, which can be defined as expenses that usually involve a direct payment or transactions for services rendered. A law firm will see typical examples of this including court filing fees, lab fees, and record retrieval expenses. In other words, these expenses will go outside the firm for various purposes. These costs are usually handled up front and billed to the client later.
On the other side of the coin, there are soft costs, which can typically be characterized by the fact that these usually come from within the firm and stay within. In other words, these costs usually cannot be billed to the client at a later date because they are harder to trace as an operating expense directly.
Common examples of this type of expense include paper costs, postage fees, and data storage. A good analogy would be to look at laborers and the materials costs they will face when building a project for their client.
However, with all of this in mind, the primary variable that a law firm will want to focus on in this aspect is cost recovery. Even if a client does not recognize the legitimacy of certain soft costs because, as previously mentioned, they are more difficult to directly link, they are an expense that your firm is faced with exclusively because of the services being rendered to the client.
When it comes to cost recovery, there are a few different strategies that we can apply when we are accounting for a law firm, but the main ones revolve around, in some fashion, billing the client in another format. One possible suggestion is to increase your hourly rate if you think that your services are not being compensated for their actual value.
When accounting for Law Firm, you have the opportunity to Implement some more practical methods for cost recovery. When accounting for a law firm, one of the most valuable strategies is to convert soft costs into hard costs. When right, soft costs can be turned into hard by outsourcing these actions to another vendor.
For example, if you’re talking about printing costs, you could outsource your printing to a local printer vendor that will charge you money to print, and once this is done, you now have a transaction on record for something that could have been a soft cost.
When thinking about bookkeeping for law firms, the goal should go above simply keeping detailed records. When you, as a business owner, are sitting down looking at your books, you have a golden opportunity to look over and reflect on the expenses you have been facing.
From there, you can take the time to analyze what is costing your business money and how to make changes.
Having the information you now possess from reading this article, we would like to extend an invitation for you to have a consultation with us individually where we can adequately assess your needs. Our firm specializes in four types of business, including accounting for law firms.
At Interactive Accountants, helping businesses grow and succeed financially is our number one goal. We are here to help! If you’re still not convinced yet to give us a call, feel free to look at our other blogs regarding the help we offer various businesses and offices.
If you are a professional in any field that these tips apply. Schedule a free consultation here with our owner Matthew Shiebler, CPA. He’s been practicing accounting for over 25 years and is a business owner, just like you!