Using Subaccount and Profits Centers
Has your law firm grown over the years to the point where you have different areas of business? If so, it might be time to think about using Profit Centers and Subaccounts so that you can compare the two areas independently while maintaining the ability to review the firm as a whole.
By taking a step back with your accounting staff and CPA you can redesign your chart of accounts so that it can provide better information and easier reporting. When you take the time to code out your transactions at the point of entry, it will allow you to run reports by Profit Center later on rather than having to print/export the details and parse out then. At the same time, make sure you haven’t over corrected. Don’t break out all expenses down to the profit center level, maintain an overhead/general profit center that you code expenses to that you aggregate and split out to the various departments.
An example would be a firm that started off with a few attorneys in one area of practice. Over the years they merged with or grew into a larger firm with either several offices in the region or distinct practice classes of work. Let’s take the first example and expand upon it. By using profit centers, you could allocate salaries, rents, utilities and office expenses to see how profitable one office is compared to another. If you then allocate out overhead from the general accounts, you would be able to see profitability including indirect expenses that are used for the firm’s operation as a whole that aren’t directly tied to that office. There are many ways for computing the firm’s overhead and you should discuss with your accounting staff the pros and cons of each.
By rethinking how you enter information and organize your firm’s accounting, you can drive improvements in reporting that can continue your drive towards success.
Written by: Tyler Chapman, Consultant Juris Professional Services