With our dedicated and experienced bookkeepers, you have the potential to transform your law firm’s financial management. It is essential for law firms to maintain a professional reputation in order to ensure the success of their business. Without proper bookkeeping and accounting, mistakes can be made that could potentially damage a law firm’s reputation and result in loss of clients, referrals, and growth opportunities.
An accountant who has experience with financial forecasting and strategy can help a law firm plan for its future expenses and income. An accountant who prepares financial statements can provide valuable insights into the firm’s overall financial health. And an accountant who specializes in tax planning and compliance can ensure that the firm is compliant with all applicable laws and regulations.
This can occur when invoices are not sent out in a timely manner, resulting in missed opportunities to collect payments. Money leakage can be particularly damaging for law firms, which typically have an 85% collection rate, meaning that only 85% of what they bill gets paid. Law firm bookkeeping records the financial transactions and balances the financial accounts for your firm. Legal bookkeeping takes place before any accounting can occur and is an essential administrative task for any law firm. Reliable bookkeeping for attorneys also provides accurate financial data for legal accountants to work with. In other industries, it is allowed to keep clients’ prepayments in your operating account and use the money to fund client projects.
Whether you mismanage the accounts, put funds in the wrong account, accidentally use funds, or fail to report correctly, trust accounting errors are a big deal in accounting for law firms. Trust accounting mistakes can lead to penalties, suspension, or even losing the right to practice law. Committing to accounting for law firms will allow you to be better equipped to identify growth opportunities.
Entering numbers manually often leads to mistakes and duplicated data entry in the accounting process. This results in wasted time, mismatched records, billing complications, and even compliance violations. Legal bookkeepers and legal accountants work with your firm’s financials, with the shared goal of helping your firm financially grow and succeed.
Unless the IRS requires you to use the accrual method—for law firms, this rule only kicks in once you start making $10m a year—which method is best will depend on your accounting needs. Every state has an IOLTA program, and it’s likely that the bank where you opened your regular business checking account also offers IOLTA accounts. But rules law firm bookkeeping do vary by state, so consult your State Bar Association and a professional accountant before finalizing your accounting setup. Make sure you’re clear on all of the law firm accounting obligations related to managing and growing your business. Accounting for law firms may be new or challenging to you, but it doesn’t have to be scary.
Nearly every industry requires a seasoned accountant who can handle all of the financial aspects of running a business—and law firms are no exception. However, leaving the task to an office manager or assistant can result in inconsistent, error-ridden financial records. And legal professionals who take on the lawyer accounting duties themselves often end up dedicating hours to non-billable administrative work. Accountants rely on bookkeepers to keep accurate and timely financial statements.
Every state has an IOLTA program, and the bank where you opened your regular business bank account is likely to have IOLTA accounts as well. However, because rules vary by state, consult your State Bar Association and a professional accountant before finalising your accounting setup. These include client trust accounting, time and billing, advanced client costs, and assigning profit to individual partners, to name a few. I helped switch us from Quicken (the PERSONAL accounting software) to QuickBooks Online.
Controllers often oversee the bookkeeper’s work, reconcile the accounts, and make more significant ledger adjustments. They can use your financial data to understand what it tells you about your business. But setting up your finances properly won’t just make it easier to file your taxes each year—it’ll save you time, money, stress, and potentially legal trouble (yes, really!). When a business expense gets lost in your personal account and you don’t claim it on your tax return, that’s a tax deduction you’re missing out on. And if your CPA has to spend time separating your personal expenses from your business expenses, you’ll end up paying them more in accounting fees. And when you commingle your personal and business finances, the following problems can arise.