Not Just a Guide for Lawyers “Income” vs “Revenue”
I hope you are bragging about “income” and not your “revenue”. That is to say… IF you are bragging at all!
You went and got that expensive degree to practice law, not to be sitting at home crunching numbers and trying to figure out why your income isn’t what you thought it would be. Nevertheless, you find yourself scratching your head and trying to figure out why you didn’t make as much as you thought, with all that money flowing in.
Well, this is a classic case, pardon the pun, of not knowing the difference between Income and Revenue. In fact, it’s one of the Five Pitfalls of Legal Accounting that Dr. Rick Kabra shares. He says:
“When paying an invoice, a portion of the revenue will need be allocated to incurred costs first. This portion is recorded separately and not considered income. Firms that have difficulty in separating revenue that covers incurred costs from their actual income will have inaccurate books, battle compliance issues, and experience difficulty recognizing which cases have become more valuable to the firm.”
So, if you’re brain needs a more definitive way to think about it, try this:
Revenue - Expenses = Income
You receive money, but you’re also responsible for various types of expenses. Some of those expenses are simply overhead/operating costs and some may be directly connected to the work you’re doing for your client. Also known as, soft costs and hard costs. The latter are liabilities that are often thought of as expenses you will need to pay. However, there is so much more behind this mathematical formula. Do you want to delve in deeper? Well, our accounting firm will provide that with some deep dive advisory services. Do you want to know how you stand up to your nearest competitor? Using QB Advanced, we will have the KPI's (Key performance indicators) for you! Our firm guides you and advises you to plan for a profitable future!
In the accompanying video, I will explain the soft costs, hard costs, admin costs and how to know which is which. Also, I show how to use LeanLaw to its full capacity to enter those for client matter billing.
If you read the article posted to our blog about Trust Accounts then, you know that good law firm accounting practices tell you to “keep a separate ledger for each client”. Furthermore, combining that with our explanation of Income, and you will have a better sense about your overall income,as well as, having a better sense of your income per client. This will prove helpful if you’re trying to elevate your position in your law firm… but that’s a subject for another time.
Click the link to make it stop!!!