Common business mistakes that are hurting your cashflow!
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The Importance of Proper Handling on IOLTAs and Client Trust Accounts
If you have been an attorney for a while, then chances are you have either seen or did business with a client that required IOLTAs or Trust account services. Despite being an attorney and having vast knowledge of the law, law institutions and schools usually train their students very little on to handle an IOLTA account. With inexperience and minimal training, these beneficial services can quickly turn into a liability suit that may end in one being disbarred, if proper measures are not taken. Here are some tips to keep you and your practice out of harm’s way when it comes to these accounts:
1) Know the history of this account. IOLTA stands for Interest on Attorney Trust Accounts. The program was first established in Canada and Australia in the late 1960s and early ‘70s as a way to accumulate funds for indigent legal clients. Soon, word of the program and its benefits spread to the states and is now mandated nationwide, with the exception of Alaska, Kansas, Nebraska, and Virginia.
2) Be knowledgeable about the concept of the account. According to the IOLTA website, these accounts should be used when an attorney receives funds that belong to a client. The attorney must place those funds in a trust account separate from the attorney ’s own money. Client funds are deposited in an IOLTA account where the funds cannot otherwise earn enough income for the client to be more than the cost of securing that income. The client - and not the IOLTA program - receives the interest if the funds are large enough or will be held for a long enough period of time to generate net interest that is sufficient to allocate directly to the client.
3) Avoid common or careless mistakes. While there are many ways that trust accounts can be abused and mismanaged, here are the three most common:
a. Withdrawing funds from the account for personal use.
As an attorney, some may feel that they have the right to deposit and withdraw as they please because they legally manage the account. This however is incorrect. One example would be when an attorney takes money from a trust account before it is rightfully earned. This often happens when an attorney has a cash flow issue. Another example would be when an attorney uses funds from the account to pay for business expenses, with the intent of paying it back. Attorneys who are often in a deep financial bind justify this by thinking that if he/she can’t pay their bills, then they can’t stay in business, which hinders them from even managing the account. Lastly, Trust account theft. In this situation, either the attorney or someone with access to the account, withdraws funds from the account with ill-intent. If committed by an attorney, this usually marks the end of his/her legal career. If committed by the bookkeeper, the attorney is still obligated to repay the funds stolen. This is why hiring a bookkeeper who is reputable and has had many years of experience is necessary.
b. Mixing of attorney and client funds.
This mistake involves commingling attorney funds with client trust accounts. Mistakes such as these are often due to a lack of understanding of how a trust account is managed and its concepts. Wrongdoings include placing personal funds in trust with client funds, using one check for two, separate purposes, and not removing earned fees or repayment from a trust account. All of these instances are considered mismanaged. Mismanagement, intentional or not, is against the rules of many State Bars and may result in disbarment if found guilty.
c. Incorrectly balancing the client balances against the overall account.
In addition to making sure their overall accounts are correctly balanced, attorneys should also ensure that the trust balances of each of their individual client accounts are as well. Attorneys should compare the two together and balance them against each other, as this often reveals errors such as an outstanding check or deposit being overlooked. These easy steps can greatly reduce the chances of un-caught errors that may result in a bounced trust account check.
Still feel Overwhelmed?
Trust account management can be tricky and if done wrong, can result in horrendous legal problems. Most attorneys are already knee-deep in trust account issues and don’t have the means to remove themselves from the problem. Googling for help usually brings back weak, irrelevant, or heavy bookkeeping jargon that even most attorneys can’t untangle. Despite this, I have provided a few online resources in which you can lengthen you understanding of the subject.
Additional Resources
1). A Lawyer’s 7-Point Plan for Trust Account Management
2). Common Lawyer Trust Account Mistakes
3) New Resources for Accounting and Law Firms
Correctly managing a trust account can be a hassle, but becoming disbarred over sloppy record keeping is even worse. Attorneys who are having trouble managing their trust accounts should promptly address the problem by getting help from a qualified accountant or from a law practice management consultant.
If you would like to hire professional, reputable help to ensure that your books are always kept up to date and in order, then either call me at (781) 910-2829 or email me at lml@lilianelarsen.com and we can get started ASAP!
How to Compete and Win: Brad Smith Shares His Unique Perspective on the Future of Small Business
There has been much debate recently on the state of the economy, but there’s one thing no one can argue with – small businesses are the true engine of global economic growth.
In the past year, 6.6 million people with a dream launched their own businesses, which created more than 1.2 million jobs. In fact, 80 percent of all new jobs are created by small businesses. On top of that, a new generation of entrepreneurs is re-imagining the very definition of what it means to be a small business, with more than 50 million people now part of the self-employed, or “gig,” economy.
Yet, even with all the success of small businesses, we are also entering a period of unprecedented change. Technology is rewriting the small business rule book and ushering in an era filled with both great challenge and also great opportunity.
Here are five trends that I believe we must collectively embrace to compete and thrive in today world:
- Social: Social media is shaping how and what customers want to buy. Small businesses need to make having a strong social presence as foundational as running payroll or checking inventory.
- Machine Learning: Fueled by the explosion of raw data, machine learning is going to turbo charge the speed of business, making customer interactions faster, smarter and more personal. Small businesses will need to tap into this trend in order to meet changing customer expectations.
- Platforms and Ecosystems: The growth of platforms – whether it is Etsy, Facebook or Airbnb – facilitate indispensable connections between parties. This is causing a shift that is empowering small businesses to compete, and often succeed, against much bigger companies.
- Mobile and Voice: We live in a mobile world. On average, we spend five hours a day on our phone, and use them to do almost everything. However, the next chapter of convenience is now upon us: voice. People can talk faster than they can type. Voice will change how customers shop, how we interact with them and the very space we operate in.
- Security: Cyber-criminals now target weakness, not size. Sixty percent of all cyber attacks are now targeted at small businesses. The solution is that there’s strength in numbers. We will all have to work together to ensure our collective security.
I want you to know that we, at Intuit, are working everyday so you can embrace the opportunity these trends present. Whether it is using machine learning to sort receipts, using the QuickBooks platform to seamlessly connect small businesses with accountants or rolling out 30 new security features across the ecosystem – we are working everyday to ensure your continued success.
We’re committed to empowering you to seize the opportunity. That’s why we fall in love with yourproblems, not our solutions. So, our solutions never stop evolving to deliver benefits that help you be successful. That’s our definition of success.
From my perspective, small businesses have never been better positioned for success. It’s vital that we embrace this brave new world of opportunity; the world’s economy is counting on us.
An Accountant’s Perspective: Is Your Business in the Black or Just In The Dark?
Today, we’re sharing the unique perspective of Stacy Kildal. Stacy is an Advanced Certified QuickBooks ProAdvisor® and a member of Intuit’s® Trainer/Writer Network. She was named one of the CPA Practice Advisor’s “Most Powerful Women in Accounting” (2012-Current), an Intuitive Accountant “Top 100 ProAdvisor” (2012-Current) and one of Accounting Today’s “Top 100 Most Influential People in Accounting” (2014) … all of which is simply to say that she knows a thing or two about serving small businesses.
Over the years, I’ve had a lot of clients reach out to Kildal Services, asking me to help them with setup, training, cleaning up their data or monthly bookkeeping, and sometimes, I’m asked to do all of it! Each client was unique; most of them had stellar products and services and were fantastic at making or providing those items. Some have succeeded wildly, and some are just, well … gone.
In my experience of working with hundreds of small businesses over the years, I’ve seen a few common traits for those owners who made it through the ups and downs of the first few years and have remained successful. They all did the following, so if you want a shot at being part of the 50 percent of small businesses that survive, take a minute and ask yourself if you are doing these things:
Delegate until it hurts: Recognize that if you are going to make it, you cannot do everything yourself – and you shouldn’t. The ones that succeed surround themselves with great people and let them do what they do best.
Work with accounting professionals: We’re here to help. Really. Find a local bookkeeper, tax preparer and tax attorney you trust, and use their expertise to help ensure your business is set up properly, compliant, and keeping accurate and timely records. We know you started a business that was your passion, and we know that taxes and compliance are not your passion – but they are ours. Really.
Pay attention to the data taken from that record keeping: Make sure you are currently managing the business to meet your goals, and to guide you as you make future planning and decisions.
I recently did a webinar for the wonderful people at SCORE.org. I spoke to the attendees about that last item and about Key Performance Indicators, or KPIs, that can be used to gauge the health of their businesses. What the heck is a KPI? It’s just a tool that measures how you are progressing toward your goals. And, yes, you have to have specific, measurable goals in order to know how you are progressing toward them! Don’t laugh; I can’t tell you how many clients I’ve had that only look as far ahead as the end of today – and call that business planning!
We discussed the four critical questions business owners need to ask themselves in order to find out whether they’re in the black or just in the dark:
What key numbers/indicators should I be looking at?
What do they mean?
How can I use these numbers to guide my day-to-day decisions?
How can I stay tuned in on the health of my business?
One of my first clients told me the best thing I ever did for them was translate what his previous accountant had been telling him into REAL ENGLISH. For months, the accountant instructed him to look at a series of reports to see how his business was doing, but the accountant was speaking in “Accountanteze” and never explained how to decipher what the data in the reports was trying to say. Sometimes, the data is SCREAMING to a business owner that there is a problem, but if the owner doesn’t know how to read them, the message and warnings go unnoticed. My client said he was too overwhelmed and intimidated to say that he just wasn’t quite getting it.
Whenever I do training with small business owners, I always try to give real examples of how product features in solutions, such as QuickBooks® Online or reports, can guide your business strategy and key decisions. There are 10 key performance indicators that will answer those four critical questions that monitor the health of our business, essentially helping you discover if your business is in the black or you’re just in the dark.
The 10 key performance indicators that are most important to you are:
Revenue: The income your business has earned from the sale of your goods and services.
Cash Flow: The money left over after subtracting expenses from revenue.
Current Ratio: Your ability to pay your bills.
Cost of Goods Sold: Any direct costs incurred in producing products that were sold during a specific period.
Gross Profit Margin: Money left over from revenues after subtracting the cost of goods sold.
Net Profit: The bottom line, as in the amount of income left over after you’ve paid all of your bills.
Net Profit Margin: What percentage of your revenue was profit.
Aging Accounts Receivable: What your customers owe you, sorted by date.
Total Inventory: All of the products your company has: raw materials, work in progress and finished goods that are ready to be sold.
Profit and Loss Statement: Snapshot of your company’s income (sales and revenue) minus expenses, during a specific period of time.
You can, and should, use these on a daily basis to keep your business on track to meet your goals and make better decisions – both short and long term.
So, how can you stay on top of all of this?
Make use of free or low cost resources to help with planning. For example, seek programs such as SCORE and their mentoring program, business tools, and workshops. Seek out your local Small Business Development Center for training on developing business plans, marketing, accessing capital or technology development.
Find an accounting professional. Intuit has learned that 89 percent of small businesses say they are more successful when they use an accountant (and by accountant, we mean any sort of accounting professional: bookkeeper, CPA, enrolled agent and/or ProAdvisor). We can help implement that business plan, design your back office systems, and keep your books clean and up to date with reliable data.
Don’t treat your accounting and bookkeeping as an afterthought. Listen to the advice of your mentor or your ProAdvisor, and find an accounting solution that fits your needs, whether it’s QuickBooks Self-Employed, or QuickBooks Online with an inventory app. You can’t get good numbers without good software!
If you’re a small business owner like me, not knowing if your business is in the black or in the dark will keep you up till all hours of the night wondering. By paying attention to your key performance indicators, you’ll know where your business stands today, how to plan and make better decisions for your future, and here’s a bonus: you’ll sleep much better at night!