Attorney Expenses and Advanced Client Costs

And you're Linda Artesani, Artesani Bookkeeping. So back for another week, we're working through what things you need to know if you've just landed an attorney as your client. And last week we jumped into the terminology that's involved around the industry. And this week we're going to dive a little deeper into some of those terms. And to help you be able to work with your attorney and to help you be able to account for the transactions properly, because it's really important in, in the terms of working in being very compliant in the books, especially they get audited sometimes. You really want to make sure that all the transactions are in the right place, the places, and that everything is— the flow of the accounting is working properly. So today, advanced client costs. We'll jump into that and what that means and exactly how that is applicable to a law firm. So with advanced client costs, there's 2 ways of looking at it. There's hard costs and there's soft costs. So soft costs are basically little charges that you can charge to a client related to the matter or the client job. case that are things like copying and things that are small, faxing, believe it or not, they still— a lot of the attorneys still fax. I have an attorney that I work with that's a workers' comp insurance attorney, and they fax because the insurance companies require it. I would love to get rid of my fax machine. That feels so old school, but they still fax. So a lot of the soft costs are copying costs, postage, things that you maybe buy postage in a roll, but you're not going to like divvy out each stamp. So you maybe put a fee on that and then you charge it back to the client. But that's really related to the matter to get the paperwork to whoever or to them or to whomever. Electronic data storage is another one. Legal research costs. So these are things that are hard to put like a number on, but the firm will generally fixate a number on it and then they will bill it back to the client. So those are fees that may generally be paid for, like you might pay for Pitney Bowes machine and you're not going to Exactly put the amount in, but you fix a fee on it, and then you charge it back. So those fees are different than hard costs. Both can be put in. You know, I like to use the product lien law. It's really simple. And I can show you how to do that with the soft costs. And hard costs, you would put in more with the workflow with their direct fixed fees that are paid to a vendor as a direct payment. So think of it as the attorneys in court has to pay court filing fees. So he writes a check. Or pays for them directly, but they're for a specific case or matter. Those fees are still fees that belong to the case. So they're still going to get billed back to the client, but they're more in line with this specific to the client. So think of it in those terms. They're monies that a firm would pay for a product or a service on behalf of the client. So for example, like I said, the court filing fees, witness fees. Deposition fees, court reporting fees, laboratory fees, if they're— depending on the type of law firm that you're working with. If it's a personal injury attorney, you could be seeing a lot of medical records. I see that a lot with the PI ones that I work with. So those are typically just the law practices. They handle these costs upfront. So it's almost like they're fronting the money for the— they are fronting the money for the client. So you receive the retainer, you put it in the trust account. But the money that's spent is the money, which is not the attorney's money until they've earned it. And so they take the money right out of their operating account to pay these expenses. So they have to be accounted for properly in the workflow, the accounting workflow, so that it's shown on the books. Those are generally put in an asset account. So I'm going to take you into QuickBooks and show you what account on the chart of accounts that would be in. And then I'll explain a little bit of it with LeanLaw and the process that it works to get that flow through. So that it hits the right accounts throughout the whole process of it. So let me share my screen. So here we are in my law firm sample company, and we're in the chart of accounts. And you can see here that we've got the advanced client cost account, and it's set up as an other current asset, and it's got some money in it already. You can view the register here and see the things that are in there. And these are just fees and fees that the client was fronted. And then you can see here that the— here was where we paid them. So we increase this account. And here's where we bill them back to the client. So we decrease the account. And I've actually put one in here for Mary Smith matter. So we can come into the check here, edit it because it doesn't look like it's set up properly. And it came out of the trust. So we want to make sure that it came out of the general business account. So we're fronting this for this lady into the advanced client cost account. And it is Put in there. So now that's going to send a message to LeanLaw that because it's in this account, this is where that 2-way synchronization happens between QuickBooks and LeanLaw. This is where I would have the admin upload them to Hubdoc. And then I would process them through Hubdoc, add the matters. I would generally have them pre-coded so that it's really simple to put them through. And then once they push from Hubdoc into QuickBooks, they will synchronize back up to LeanLaw. So it's a smooth flow, very little touchpoints by the accountant. But very effective. It's just basically all I'm doing here is I'm putting in the matters on the expenses that have been uploaded because I've already pre-coded most of the vendors to their specific account, which most of them come into this Advanced Client Cost account. So let's hop over to LeanLaw. And see here, as we come into the Expenses tab, this happened automatically. It came into Mary Smith. It's already in here waiting to be billed back to the client. So for the most part, when you work with a law firm, They'll do their time, the attorneys will track their time and charge it out. You'll see the time entries that will come through, which is what we'll get into next week. And then they will also add expenses. So here's also where you can add your soft costs like copies or, you know, just pick Mary Smith here. And then I could just pick maybe something from a template, copies, and then it just says copies. And then, you know, you put your timekeeper in here if you want to do that. And it's already preset to $1. Maybe she had 5 copies, I'm just gonna put $5, I'm gonna hit save. So now that's going to be in here for another cost to be billed back to the client. It's relevant to the matter. So let's come back into QuickBooks and actually add a bill. And I'm going to show you how this process works. So normally, like I said, I would bring it through Hubdoc. But let's just say we're going to directly add this to the bill. So I'm going to— I can add it as a bill as well. Let's say we got something from a client from the court reporting company. So Manhattan Court Reporting. So I'm going to put it in that advanced client cost fee account, and then it says to the Abraham Williams, you put whatever description. Description is important as you enter these transactions, even via Hubdoc. This is what's going to show up on the invoice. So you really want to put some detail there of basically what was on there. If you use Hubdoc, the really beauty of it is it's actually going to attach the picture of the bill. here. So you're going to always have that tied to the transaction. So I'm just going to pick Abram— actually, let me pick Mary here. So it's a certified transcript. I'm just going to put it as Mary Smith again. I'm going to just keep with that one customer so we have that available. So I'm just gonna put Mary Smith versus John Jones. So we just put that there, $67, and the customer will be Mary Smith. So I'm going to tag it to her. And I'm going to put it in her matter. So not her parent account, her matter. I'm going to save and close it. I'm going to come back up to LeanLaw. And you're going to see here, if we give LeanLaw a little second, we'll give it a little refresh because it was open. Now you can see that I've also got the bill here, certified transcript. So that's in here. And even in here, I would put notes. So these are the things that are going to show up on this bill. So you can add them right here. So this was estate planning, I can come into QuickBooks to see what the transaction is. This is what I love about this program. I know people like, you really love LeanLaw. I really love LeanLaw because of this. So this is a, you know, I'm just gonna put court filing fees. So you can put the matter number in there, you can put whatever is in there, your check number, whatever. So now it's going to be in there. Come back to LeanLaw. Cancel. So if I come back to LeanLaw, give it a little refresh. Whatever I've written in here is now going to be able to be shown on the invoice. So that's really important when you start to work with getting these costs in because they're going to go into the assets. So they're going into the balance sheet, right? And then as we build this out, so now next week when we go through the billing, it's to pull these out of this account to clear this account out for Mary Smith, along with the client, the time billing from the attorney, and we mix it together and create an invoice that's going to zero out that account and it's going to get applied to the matter. And then of course the attorney is going to pay himself, him or herself, or herself. And the money will move out of the retainer into the operating account. So it's basically the flow. So pretty simple, but I know that sometimes you get— you can easily get confused with when you're working with attorneys and you're working with the different costs and the fees that come through. Obviously rent or anything like that, maybe telephone. Even working with electricity, those type of things are overhead. So those are even the— you could, you could place a cost on the admin. I've seen them. I've seen attorneys do that where they'll add a fee for the admin. They'll add a fee for the paralegal, obviously, anybody who's done any work on the call, on the case. Those could be included in maybe your soft costs as you kind of calculate that out, because you're gonna calculate pieces of it because they're not going to work on one matter all the time. So you probably have to divvy that out. And there's no physical hard check written out to that person for that one matter. So that would be more soft costs. And you could recover them. I've seen attorneys actually increase their rate per hour to cover that. Sometimes when you get into the real detail, it gets to be an argument with the client when they get their bills. So sometimes they'll, they'll absorb that into one big main fee with the— for the main attorney. I've seen it both ways. It's really a matter of what— whatever way the attorney or the law firm wants to. wants to do their billing in that respect. It's just important to pull those soft costs and the hard costs through when you bill. It's important for the accurate— accuracy of the accounting to have them in the correct accounts, right? Because these, these expenses are not expenses for the law firm. They're expenses for the matter. And if you keep thinking about the matter being that separate little checkbook, that's not the attorney's money, but you're kind of keeping track of that. If you think of it in those terms, I think it's easier to wrap your brain around the whole concept of how the trust accounting works. So I hope that that helps. I hope that keeps it less confusing when you think about it in terms of what expenses belong in the profit and loss and the expense category, and what expenses are really part of the asset and will get divvied down and through the trust accounting. Now, one important thing to note, there are times, and I've seen it happen, the attorney will put something up into the advanced client costs and then it never gets billed back to the client. The case is closed, the matter's closed. then there's an action of become— that expense will be— that will become an expense, it will take— we'll take it down. So keeping track of that, it's easy to do in lien law, you'll see it listed on the list of expenses that are there to be billed out. And if you see the matter's closed, you're gonna have to do some housekeeping to move that down into the expense category for the law firm, because then it will be a true expense. So it's important to note that you need to really keep that account up to date. I liken it to— because I work with real estate too, it's kind of keeping track of the the security deposit account. Same concept. I keep pulling all those in. It's not my money. I put it in that other account. And then when the tenant, the tenant moves out, I got to give it back, or I apply it towards repairs and maintenance. So those are things you need to— it's the same exact concept, which is why working in these 2 industries are very similar. They got similar similarities are right there. And if you think of it in those terms, that's not my money. But if I have to keep track of that at the end of the year, You have to account for that on the tax return with the security deposit. You need to— it's got to be accounted for to the penny. I usually have a spreadsheet for the tax accountant. And that way, because it's part of their records to prove what money was more in there, and it's not your money. So you cannot mishandle those funds. Really important. So I hope that is clear. And I hope it's concise. And I hope it's easy for you to understand. I think this is the way I've processed it in my head. And I think it makes it easier to kind of figure out. As you can see, working with LeanLaw is very simple. If you were trying to do this transaction in QuickBooks directly without the assistance of that app, there's a lot of working pieces, a lot of parts in it. And maybe I'll do a whole series on how to do this without the app. But I wanted to really showcase the app because it really does make working with attorneys and billing and all that that goes along with it really helpful, saves steps, saves time. I can't, I can't stress that enough. So hopefully that's very helpful to you. If you have any questions, comments, please feel free to reach out. You can always reach out to me on our Facebook group, QB Community Live. If you have any questions, if you want a topic that you're interested in, maybe applicable to law, I'll certainly do it. Even if it's not applicable to law, we certainly— Matthew and I would certainly do any video if it was requested. So thank you for watching, and we'll see you next week. Bye now. Bye.