Can I use QuickBooks for my Law firm practice?

Hi there, Linda Ardisani, Ardisani Bookkeeping. I'm in a pretty happy mood. I had a great day yesterday. It was kind of a funny, silly day. Got to teach quick yoga in the morning, teach QuickBooks, and also I got nominated to be one of the top 100 ProAdvisors. So you still have to vote and it's a— It's partly a popularity contest, but Insightful Accountant does a good job with setting up a bunch of criteria to see if you can get into the group and I— to get into this group of people, but it's really humbling to be put on the list with the likes of Hector Garcia, Michelle Long, and then of course some of my friends, Matthew's on there, Dan DeLong. There's a lot of my friends on that list and it's to be put in a group or a list of people who I not only respect, but I follow and I learn from and it's just really, very humbling. So I will put a link in my blog if you'd like to vote for me. I would really appreciate the vote. Now getting to this week's topic. Last week, I did a post all about how do you choose the right QuickBooks Online product for your client. I think it's a place where people sometimes can struggle. And hopefully that post was helpful to help you select the right one. Selecting the right one's important, right? Being able to know which product is the best for your customer where they're not overpaying, but sometimes they may want to move to a higher level product to get all the features that they might have to get from other apps. Sometimes you got to sit and look at how much time am I creating in my life doing these manual entries where maybe the automation piece, adding that little bit more per month, will get you if you move up to like QuickBooks Online Advanced. This week is about how do I use QuickBooks exclusively, my only app, to do my law firm work. It's definitely more labor intensive. It's a question I get asked a lot of times by attorneys who reach out to me that are maybe just moving off and branching out on their own. They've left a big firm. They're now starting out their practice on their own and they want to keep their costs to a minimum. I mean, that's how we all start off. They don't want to spend a lot of money on apps. And they want to do a lot of things manually because they don't have the revenue coming in just yet. So that's understandable. As I'm going to share with you my method of using QuickBooks for just the, the steps to create a retainer invoice where the client comes in and pays you the retainer and you're holding that money in a special account to be used on a future future billing when you've actually done the work and the revenue is recognized. And then I'll just show you how to recognize the revenue and show you the steps. And then I'll just show you the steps in LeanLaw so you can see the difference. Because LeanLaw costs $39 per month, and sometimes that $39 per month could be saved just in the fact that you will have a timing tool, you'll have a one-place stop to really record the time when the client comes in, keep your calendar, and some of those features alone If you save 1 hour billing that you forgot to do because maybe you were just tracking, you know, tracking on your phone your hours when the client comes in, you hit the timer and you start to track the time that you're working with a client because most attorneys do still bill for time. And then that savings with paying for the app might be worth it. Not only that, but the workflow is smoother. Let me take you to my screen and I'm going to show you how to work in QuickBooks alone with attorneys and law firms and how to receive a retainer, and how to recognize the revenue. So let me share my screen. Here we are on my law firm test file. It's just my playground, my sandbox where I, where I play around in the program. So the scenario, you're the attorney, the client, possible client comes in, they tell you their story, they need to hire you, you accept that and you let them come and be your customer. Now you need to set them up in your file as a customer because now you've asked for a retainer, they've paid you the retainer, and now we've got to put this all in QuickBooks. So this is how we're going to do it. First thing I'm going to do is come over to Sales. I'm going to go to Customers. What we're going to do here is we're going to pick New Customer. And I'm going to put their name in. So let's see, I'll come up with a name of Peter Johnson. That's my new client. And then of course you fill in all the details, and I'm not going to go into that— email, phone numbers, all that stuff. They're hiring you to do estate planning documents. So we're going to go over here and go back, actually go back to customers. Now I'm going to make another customer. This customer is going to be a sub-customer of Peter Johnson. So I'm going to have to create another customer and then attach it, and I'll show you how to do that, attach that as a sub-customer. So the customer's name is going to be Estate Planning. And then the sub-customer, it's going to be a sub-customer under Peter Johnson. So Peter, Peter Johnson. So when you look at the customer list, you'll see here's Peter Johnson, here's the estate planning. Now I'm all set up to receive the retainer. So the person came into my company, my law firm, and paid me money for this, this type of legal work. They're paying on the spot. So it's not an accounts receivable transaction. I don't need to create an invoice and create a payment because it's happening all at once. So what we're going to do is we're going to create a sales receipt. So I'm going to go over to New Transaction, create a sales receipt. So it's going to be an all-in-one receipt of payment. And I'm going to put it towards Peter Johnson Estate Planning. I'm going to put it right at the matter level. I want to connect it, this transaction to the matter. I've already created a product and service. I'll do the service date, I'll do as of Monday. Service date, service is going to be retainer. So Should come up. I've got a prepaid retainer and I will show you how that looks in the backend, how I built it out. And then I'm going to say that that person gave me $4,000. And I'm set up for class tracking and, and location only because that's how I have my file set up to play around in it. But we don't need to do for today's purposes. We don't need to touch any of that. So I've received the retainer. How did I receive it? I received a check. The person wrote me a check. And, you know, here's the check number. I'm going to hit Save. Now the cool feature inside of QuickBooks is that you can come over to the More button. You can hit Transaction Journal and see what happened behind the scenes in the general ledger, how this actually hit the general ledger. So here it is. It hit the bank because I put it directly into the bank account. And you want to do that, especially if you're a sole, small practice, a single attorney office. I highly recommend grab, like I said with the phone before, grab a bank account. Some states require you to have the bank accounts. They have relationships with the bar associations. You might be limited to who you can pick for your trust account bank holder. You might have to go to specific banks, usually the bigger banks, the Chase, the Bank of America. Highly recommend using them. Not that I'm a big fan of the big banks, but they do have the better apps and you'll be able to deposit with your phone, put the payment right in. At one time, not holding the checks till Friday and putting them all in together. If you do have that scenario, you want to put it to undeposited funds and then of course group the payment. So here it is. It went right into the trust account, trust bank account, and then I also put it in a category called retainer liability. So it's sitting right there on the balance sheet. None of this has been a transaction that would ever hit my profit and loss. None of this money's income. It's money that's not been earned yet. So it's a liability. I owe a service to this client. So that is how you can look at the transaction on the back end, look at the journal report. So that part's done. Now I've done the work. I've done the will, the trust, or, you know, the whatever work has been done for this client. Now I need to invoice him. I'm going to come back to Mr. Johnson. Here he is. I'm going to bill him again at that same level, the matter level. I'm going to use— in fact, let me take you to a window so I can show you those 2 items that I've set up. So I'm going to open— I'm going to pick this and open up a new tab for the product and service. And then I'm going to show you the retainer received one. And I'm going to show you What it looks like and how I set it up. So retainer. Here's prepaid retainer. I'm going to edit it so you can see what it looks like. And in this particular instance, prepaid retainer is the name. I write down the words retainer received and it hits the— for the income account, it's not actually income, it's the retainer liability account. That's important. You don't want it hitting any income account at this point. And now it's going to go into that, that retainer account. Now the other thing that you want to look at is you want to look at the income account. So I'm going to go to my legal services, legal income, and take a look at that. Both of these, these are all going to be non-taxable, right? Non-taxable event. So legal income, I left the description empty. You could create items for Like specific words. If you do the same thing over and over again, you can have a legal income dash will prepare a will, and then you can put the words in. You can do legal income hours billed or whatever. You can have many of these and, you know, you're going to name it a unique name, but you'll be able to track that on an income— on an invoice for your client. And the more you can automate this stuff, the better. So making different items will definitely help. Now I'm going to go back, create an invoice at the matter level for work that I've now done for this client. So again, matter level, I'm going to come down here. I did the work on the seventh. I did the legal, legal income, and then you know prepared will, will, da da da da, the words. And I'm going to say because I took four thousand dollars, I'm going to say that I. $1,000 worth of services. Now this invoice is really— I'm not— this client's not going to pay. They already paid me ahead of time, remember? So what I need to do is now show that money coming out of the retainer using that same item. So the retainer, prepaid retainer is now being applied. So instead of saying received, retainer applied. And then of course, you want to put a lot of notes in here, write the check number and all that in here again. And then I'm going to use a minus here. And I'm going to put $1,000 because I'm taking $1,000 out of that retainer balance, and then I'm going to put it in. So now it's a zero invoice. And over here, you start to write the details, invoice, you know, 1272 for legal services to prepare will. And then I would do $1,000. And this is what you're going to do. And then the next line down, our retainer applied, paid with check, you know, you could put in here paid with check, and then you could put the other details in, it was $8,000 something, you know, you could do that. And then put in here, minus $1,000. And I'm sorry, the retainer invoice, original invoice, the retainer one was $4,000. And then memo, and then under And here you're going to write balance of retainer is now $3,000. So you just put $3,000. So there's notes. Notes here are really important. And you want to make sure that you type all this out, you're keeping a record of that. And I'm going to hit Save again. And I want you to see that back end of the transaction, see the transaction journal of what happened in this case. So here is my bill for $1,000 going right into my income account because I use the item and it's, it's the items what you invoice, what QuickBooks uses. And behind the scenes, you'll see what accounts it gets to and what accounts it applies to, which is where you'll find that underneath the product and service. Over here I've got $1,000 hitting my income account and $1,000 coming off my retainer. Liability account. So I'm reducing the liability and paying my— I'm using the deposit to pay the invoice, which is now increasing my income or my revenue. It's pretty simple, right? One more step. We have one more step. And what's that step that's missing? Haven't moved the money out of the IOLTA account and into the income account and into the operating account. So we need to do that one more step. How do I do that? Plus sign, transfer. I'm going to transfer the money out of trust into operating for the money that I've earned now, which is the $1,000. And then in here, I would write that this is— I'd make notes, right? Lots of notes, because this is not an automated procedure here. I need to make sure that I put down Peter Johnson applied $1,000 retainer to legal income for services. You get it, you get the idea. Provided, you know, blah, blah, blah. You just keep, keep writing and make a lot of notes so that all these, all these things tie back. Now let's see how this looks on the balance sheet. So let's go over to the balance sheet. So that's the steps for receiving the retainer. Recording the income with the invoice, receiving the payment, taking another retainer, and then moving the money, physically moving the money out of the trust account into the operating account. Those are the steps in QuickBooks. How does it look on my reports? I'm going to do my report as of this month. I think my dates here are off. Run the report. I'm going to go into the bank account. I'm going to see that $1,000 coming out of the bank account. And I'm transferring it for Peter Johnson. It's coming out. I should see here where it went in. Peter Johnson gave me the money, took it back. Now I'm going to come over here to my— I have a— this is kind of messy in here because I've got this set up for lien law. So I have to find that liability account, which is retainer liability. This is the manual way using only QuickBooks. And you'll see here where I've got The $4,000 coming into the retainer account where I'm holding the money waiting for it to be, be used in the future. And then you'll see here Peter Johnson money coming out. I like to show this report by grouping it by the name. So if I group it by name, this is the way I can track it. Some attorneys like to track it in a spreadsheet. You can obviously export this to a spreadsheet. But this way I can see the money coming in, the money going out. See, you You can see it right there. And obviously the dates would be different. This probably would have happened on maybe— I thought I saved it as 3/31, so the order would be proper. Save and Close. So I didn't date it quite right. But normally you would receive the retainer and then the invoice would come in the future because you've now done the legal work. So that would look more like— it should look $4,000 in, $1,000 out, balance $3,000. And you might even want to make a little copy of this and attach that to your records. Really important. The more you can document this stuff, the better. Because by law, you're going to have to show this probably per month, maybe quarterly, depending on your state. You're gonna have to document all the money that flows into the trust account, bank account, all the money that flows out, and your balances have to tie back. The bank balance must equal the balance of the entire trust liability. In this case, it needs to make sure that it balances back to this retainer liability account. So the total amount in the retainer liability has to equal the sum of all the retainers at the time period when you're reconciling the bank account. So you do a 3-way reconciliation. Really, really, really important. So what if this was a case that I was doing this matter in LeanLaw instead? How would I do it? So remember, LeanLaw costs like $39 a month, and it's not that expensive, and it's a time tracking app. So in this case, if they were doing the will, You had the meeting, you received the retainer. Now I'm doing the will work and have to turn my phone on and start to time it and remember to shut it off. Where if you're doing this work in LeanLaw, it's all built into one place. So the chances of you forgetting to track time or not bill time, track expenses— and we didn't even get into expenses here. So there's no expenses on this. You'd have to do the billable expenses and then pull the billable into your bill. So that's another piece that's not— I did not demonstrate that's extra that would be more involved in tracking this. If this was my client and I was doing work in LeanLaw, let me take you to LeanLaw and show you how that is. So here I am in LeanLaw. I'm just going to use Mary Rubio. I've already set her up as a customer. And to do that, it's really simple. You just come over here and add a client. And then once you add the client, it automatically has you add the matter. So it's just a couple of clicks. It's super simple. And the best part is you can set the setting in LeanLaw so that it automatically sends all that into QuickBooks. So it's just one step. Add the client, add the matter, and boom, it's done. Now I'm going to have some time here. I'm entering some time and I'm just going to, you know, write up will. I mean, you can just write whatever you need to in here. And this is just some words that you're going to put in here for the attorney would track this. And I'm going to make it be— see, I'll make it 4 hours billable time. And I will create the entry. So that's $1,000 that I'm billing Mary Rubio. for this estate planning, because that's the matter I had already set up. Now, that's all created. Now I'm going to make the bill. So I am now billing my client who has my money in trust, because all you have to do to put the money in trust is deposit to trust. That's all you have to do, click that and go. So now I'm going to go to Mary Rubio. I'm going to invoice her. So I'm gonna come back up here to invoice her. She should be in ready to bill. Here she is, Mary Rubio. I'm going to create a draft invoice of just of that $1,000 and keep it really simple, very similar to what we had before. It's in draft, Mary Rubio. I'm going to submit it to QuickBooks. Really simple, right? I didn't have to go all that typing and do all that memo line and all that. And the reason why I don't have to do that, I'll show you, is we come into Mary Rubio. Here's her invoice. And if I wanted to view it in QuickBooks, It's already got the details in there about the— where the trust account money is and where everything is. Here's what— remember all that stuff I typed that I was kind of like manually typing in? Client retainer, payment to be made from retainer, retainer balance $700, all already done for me. So here I'm back in LeanLaw. I'm going to go to her account. I'm just going to find her. Actually, she should be right here on this page. Going to open her up here, go to the matter. I'm going to record the payment. And I've already preset this at the payments— any money received, a retainer, boom, automatically in the trust account. And then here, any payment to invoice is going to boom, go into the operating account. I do it singularly. You can do again undeposited funds and then put all that in at one place. So payment of invoice, you can put any more details in here you want, record the payment. So here we are. We've matched our trust account. You can actually click this trust report. It's going to take me right back into QuickBooks and show me on the chart of accounts that subledger. So that's how it works. Here you'll see the money— that money in, money out. There's my invoice, and that's my check that's going to go into the bank. It's moved into the bank already. I don't have to do the deposit. I don't do the transfer. Super, super simple. And record the matter. I actually create the client, create the matter, record the deposit, 3 clicks, then move the money from— create the invoice by the timekeeping. That part has to be done by the attorney. Any expenses, anything like that will be pulled in and put into place to be billed, and then create the invoice, receive the payment on the invoice to clear the AR. It all goes into the bank. Beautiful thing. Sweet workflow. Super quick, super fast, less chance for error. You probably will save that money of the cost of the app just on the fact that you're doing your timing, time tracking in LeanLaw. You do all your calendaring in LeanLaw. You'll be so used to being in a habit of going into LeanLaw to do the work as an attorney, you'll be less likely to miss time. And you'll be less likely to make errors on your account because you cannot make yourself pay more than that retainer. I can't go in there with a $2,000 balance and pay $4,000 bill. It won't let me. There's safety precautions in place. So that's another key component to using this app. It will protect you from maybe paying yourself more money out of the trust than you actually had. It'll keep a better track of everything. The automation piece alone will help you with a sweet workflow. How much are you paying? How much are you charging an hour? How much money can you save by using this workflow? And that's really the point of the app cost. A lot of times I'll go off, you know, I start to look at what I'm paying for apps. And a lot of times I analyze that every year because I do chase the little, chase the little shiny object going, oh, there's a new app. But sometimes you have to really look at, is it really benefiting your practice? Is it really something that you need? In this case, LeanLaw is definitely something that I need. And I think it's a great piece in my workflow. I'll ping you back on that. And I hope that this was helpful to see the steps and the pain points and the workarounds to make QuickBooks alone work. And then the steps for LeanLaw, which I did skip a couple as far as setting up the matter, but at least you can see that it's just the whole point of this app was created by an attorney. Great people behind the app, and it really keeps and makes the workflow so much easier. Time savings, chance for errors are reduced, and The chance you will forget to bill or forget to shut that timer off on your phone, it can happen. So knowing that, it'll pay for itself. I hope you have a wonderful, wonderful week, and I'll see you back here next week. Bye now. Bye.