I have been talking with several lawyers about the whole “how to start a law firm” project and this blog. One comment was that I should focus more on the basics of getting a law practice up and running. So, in an effort to cover more of the basics, here goes.
If you start a law firm, you are going to need bank accounts. My firm currently has three different accounts: (1) checking; (2) savings; (3) IOLTA trust account. The last one, the IOLTA, is the most important one. Those are the basic three that I would recommend to get your practice running. (As an aside, I have been thinking seriously that my firm needs a credit card so that I can more easily track expenses. This is important for knowing what is and what is not a tax write-off.)
So, the bank accounts. I chose one particular bank in Indiana because the Indiana Bar Foundation told me I had to. The bank is on a list of approved IOLTA banks in the State of Indiana. I have checked, and this process is very similar in Minnesota. Obviously, I went to this bank to start my law firm bank accounts. The bank was familiar with the process and they made everything pretty easy for me. I was paranoid about screwing up the IOLTA account somehow because all I read in bar journals and other legal sources is that lawyers often lose there law license for screwing up the IOLTA account. Of course, it turns out that lawyers lose there law licenses because they steal from said account, not because they set it up improperly.
I realize this is pretty simple, but bear with me. I chose a checking account with large, business-size checks for firm expenses. I use the checks to pay bills. I use the checks to pay for court filing fees and other expenses. If I use the firm’s money to pay expenses for a client, I make a charge on my billing software on the particular client’s file. This is how I know I will be reimbursed by the client when I send out monthly billing. This account is also what I use to deposit money from my clients when they pay their bills. I use this account a lot and this is how I ultimately pay myself.
I don’t use the savings account much, but I think it is useful. I make sure I have a minimal balance in savings in case of an emergency. I don’t know what that emergency would be, but it’s there and I feel good about it.
Finally, the IOLTA. This is probably the most important one and the one you need to be very diligent about. If you want to know what IOLTA accounts are all about, click here for Indiana guidelines. I have checked around in other states and the guidelines are very similar between jurisdictions. There is some variation and it isn’t mandatory in every state as far as I can tell. Basically, the interest from the money earned on a client’s trust money is used to fund various pro bono and other causes in your particular state. I like the IOLTA program. I think it makes a lot of cents.
Once you set up the IOLTA, you usually have to report the fact that you created an IOLTA account to your particular state. The bank I worked with was very familiar with the process and they did this for me the day I signed up for an account. Now, there are also rules for closing an IOLTA account and I need to go over them again as I prepare to wrap up my Indiana practice and move to Minnesota. Once you have an IOLTA account up and running you can begin to place client retainer or trust funds into it.
There are many many rules and case law and advice about how to properly maintain your firm’s IOLTA account. I’m not going to discuss them here. My rule of thumb is I’m a fiduciary, it’s very important that I take care of it, and I don’t ever mingle funds. If you went to law school, you should know what being a fiduciary means.
There you are, a basic break down of starting a law firm bank account(s). I’ll admit that I’m new to the bank account process and I am still learning what works best for me and my firm. I suggest you do the research and find out what works best for you when you start your law firm.