With the knowledge you’ve gained, you’re well on your way to better financial health. The hope is that, by knowing where your money is coming and going, you can spend more wisely and capitalize on valuable opportunities. If you sent your client an invoice, that is immediately counted as revenue if you don’t receive the money for weeks.

This can make the process smoother for new small businesses that may not be familiar with all of the tax requirements. Ultimately, by having an effective bookkeeping system in place, law firms can better manage their finances and create more opportunities Running Law Firm Bookkeeping: Consider the Industry Specifics in the Detailed Guide for growth. Law firms need to ensure that their financial and accounting practices are up to par in order to grow their businesses. Bookkeeping and accounting are important for all businesses, but they are especially important for law firms.

Best bookkeeping services for lawyers

You may also need to provide proof of address and identification documents. Once the account is open, it is important to manage it carefully by regularly reconciling accounts, tracking expenses, and paying bills on time. The right budget management software is essential for law firms.

• While you spend many years honing your expertise and experience to become a professional attorney and run your law firm, you didn’t learn about bookkeeping and accounting for law firms.
• By learning the principles and best practices of legal accounting and bookkeeping and mastering their languages, you can effectively separate personal and business expenses.
• We’ll dive more into the specifics of why you need a CPA later on in this piece, but trust us when we say hiring one will make your life much easier.
• By knowing your expenses and revenues, you can make sure that you are not spending more than you are making.
• The most common and dangerous legal accounting areas to make a mistake in are trust and IOLTA accounts.
• You should budget for an accountant and bookkeeper to assist you with managing your firm’s finances and ensuring you’re compliant with ethics regulations.

These businesses are in all sorts of industries from advertising to real estate. Some have income in the thousands per year and some have income over $5 million per year. Each of these records should be kept for a specific time—some for 10 years, some for as few as three.

A step-by-step guide to mastering accounting for lawyers

It involves a ton of inefficient, manual work—involving a lot of spreadsheets, paper invoices, inputting data entry, and struggles with collections. Beyond just staying organized and compliant, following best practices for accounting for law firms will help you identify growth opportunities. By establishing—and following—best practices for accounting for law firms like the examples below, you’ll be better able to help your firm stay on track.

• With legal accounting software, you can manage your accounting needs from anywhere at anytime.
• Additionally, lawyers are not allowed to keep any interest earned from their trust account; instead, they must surrender it to the client.
• As with the law, too much can go wrong if you don’t have the right professional in charge.
• Finding trust accounting software for your firm will make everything run more smoothly and efficiently.
• We can get you back to servicing your clients and building your law firm in no time!

Finally, an easy expense reimbursement system can help employees and partners feel more comfortable using company credit cards for business expenses. A mileage tracker app can help you keep track of all your business miles, as well as plan for future expenses. A free time tracking software can be used until you get your legal accounting system set up. There are a few different ways to streamline time and mileage tracking, but the most important thing is to just get started.

Specify Your Accounting Methods

Unlike most bookkeepers, we understand the unique challenges of law firm bookkeeping, which has its own industry-specific tasks and procedures. Request a free assessment and talk with our Managing Director to discover how your firm benefit from Practice Alchemy’s law firm specific bookkeeping and accounting services. Make one mistake when recording your debits and credits, and your entire balance won’t add up.

The cash basis accounting method is easier and more straightforward, which will free up your time to work on building your practice. Regardless of the size of your law firm, it’s essential to understand the best practices of accounting and bookkeeping to ensure that your business is on the right track. A minor accounting error could result in significant reputational damage, hindering future growth opportunities and client referrals. Law firm accounting is fairly subjective compared to law firm bookkeeping. A critical part of the legal accounting process focuses on analyzing financial reports and KPIs to uncover critical insights and  make informed business decisions. This allows you to determine which cases are the most profitable, which ones drain the most resources, and where money is being spent but not made.

Support From a Team of Accountants

For over 15 years, Supporting Strategies’ locally owned and operated offices have served thousands of companies. Working with us eliminates the need to hire a controller, an HR administrator or an accounts payable manager. We can fill all those functions, giving your firm one comprehensive, cost-effective, long-term solution for your back-office needs. Supporting Strategies offers a range of outsourced bookkeeping and controller services that will transform the financial management of your law firm.

• If you’re missing your budgeted numbers, you can reduce expenses, delay one time purchases, increase sales through more aggressive marketing or advertising, or lower your profit expectations.
• You pick up coffee for the office staff before work and use the corporate card.
• Send reports instantly to the bank, partners, or equity members.
• Putting it off means having to catch up at the end of the year—the more stressful and time consuming approach.

Accounting for law firms lets you collect and analyze information, and make data-driven decisions based on what money comes in and leaves your firm, so it’s worth it to pay attention. When a lawyer obtains a large sum for a client, they usually deposit this money in a trust fund that accrues interest. When lawyers obtain a smaller sum, they can place it into a pooled trust account. In the past, however, these pooled funds could not earn interest. According to the ABA, Interest on Lawyers’ Trust Accounts (IOLTA) offers a way to raise money for charity from the interest attorneys earn from their trust accounts.

Set a budget for your law firm

For example, an accountant might examine your firm’s profitability and make recommendations to improve your bottom line. If any of these three balances do not match, it could indicate errors in your financial record keeping and should be investigated immediately. 2) The accrual method is more complex than the cash method and can therefore be more difficult to keep track of. 3 components involved in the reconciliation process consist of the trust ledger, the client ledger, and the trust reconciliation.