Top 5 Law Firm Bookkeeping Challenges and How to Overcome Them

bookkeeping for small law firm

When organized as a business system – accounting can provide strategic clarity and confidence for decision making and planning as you build. You can also make a difference in your firm by creating opportunities for financial growth. law firm bookkeeping When it comes to organization, getting off on the right foot should help you stay more organized now and into the future. To keep your firm on the right track, it is helpful to have a list of best practices to follow.

Regardless of the size of your law firm — even if you’re a solopreneur — it’s important to know accounting and bookkeeping basics. By learning the fundamentals of accounting, you can make sure your firm is compliant with ethics rules while finding ways to optimize your cash flow. As an attorney, you’ll spend a lot of your time invoicing your clients. Picking an invoicing solution that automates the legwork can save you time and money. Cloud services like FreshBooks let you set up recurring invoices and record project expenses while also letting your clients pay outstanding invoices online using their credit card. Most law firms opt to use cash basis accounting because it’s simple to maintain.

Should Your Law Firm Hire a Bookkeeper and an Accountant?

You’ll be able to give each employee their own account so they can update billable hours and bill directly. You can update the software on mobile devices so even if you are in court or meeting in a client’s home you can update their account in real time. In addition to all the facets of a business like payroll, utilities, supplies, and expenses, they also have to comply with regulatory standards for managing client funds. Legal bookkeeping is a complex field that requires specific processes.

  • When it comes to organization, getting off on the right foot should help you stay more organized now and into the future.
  • Make sure whatever tool you use integrates, or choose an all-in-one software for both.
  • The business will need to look at the firm’s finances and see what makes the most sense for your business structure.
  • Without a trusted bookkeeper for attorneys, a legal accountant won’t have any data work off of.
  • Worse yet, many firm owners or their managing staff had no clue.
  • Using key performance indicators will help you know sooner if you’re on track.
  • Face-to-face communication makes on-site service the most convenient bookkeeping solution for lawyers.

As a lawyer, when you receive cash that belongs to a client, you are obligated to hold those funds in a client trust account separate from your own money. These are commonly known as IOLTA accounts (interest on lawyers trust accounts) and vary by state (and also check with your local bar association). 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.

InvoiceSherpa: For automating payment reminders

They check-in with us weekly or more, and they maintain and upgrade our financial systems as our firm continues to grow. They always give us good folks to work with; we enjoy working with them. Practice Alchemyʼs approach to law firm bookkeeping includes a thorough understanding of your practice and the management of your books with a solution that works specifically for your firm. At Supporting Strategies, small business bookkeeping and controller services is our core business.

bookkeeping for small law firm

Furthermore, Xero integrates with Clio which makes bookkeeping and reconciliation tasks simpler. When choosing an accountant for a law firm, it is important to consider several qualities. The accountant should have experience with financial forecasting and strategy, preparing financial statements, and tax planning and compliance. Overall, an experienced and qualified accountant can be a valuable asset to any law firm. By taking the time to find the right person for the job, a law firm can ensure that its finances are well-organized and accurate.

Learn More About Law Firm Bookkeeping From the Supporting Strategies Team

By having a CPA on board, law firms can get assistance with filing taxes and making sure they are compliant with all regulations. 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 for growth. In addition, it is important to select an accountant or bookkeeper who is familiar with the software and systems used by the firm.

If a bookkeeper performs day-to-day tasks like data entry, a legal accountant looks at the big picture. They collect, analyze, and use financial information to plan for the future. With a legal accountant, you can be certain that your firm is compliant and is set to grow. I helped switch us from Quicken (the PERSONAL accounting software) to QuickBooks Online. I have worked with several CPAs to get the taxes filed for the different companies and learned how they like to receive information and what can make filing taxes easier.

Outsourced Accounting for Lawyers and Law Firms

With this picture, you can see opportunities for growth and see options before less organized competitors. Law firms will hire legal accountants to prepare financial statements, provide financial forecasting, and capture expenses to give your business a clearer picture. ZipBooks is considered by many to be the best accounting software for smaller law firms. It includes standard features and is incredibly easy to navigate. On top of that, ZipBooks is more than reasonably affordable; it’s highly affordable compared to many options.

The accounting method you choose should be in place when your firm files its first tax return. It affects everything, including cash flow, bookkeeping, and tax filing. Law schools offer little to no training on how to manage these accounts.

When holding money on behalf of clients or third parties, you need a trust account — which must be separate from your personal or business bank account. You need these accounts to hold retainer fees, legal settlements, and real estate transactions. Each state’s bar association regulates the handling of trust accounts and imposes strict penalties, including disbarment, for mishandling them. Keeping accurate records of your law firm’s accounts is a challenging yet vital part of running a legal practice.

  • Supporting Strategies can evaluate your day-to-day operations and suggest improvements that have the potential to transform the financial management of your law firm.
  • This way, your firm can stay compliant with ethics rules—and you can ensure you aren’t leaving money on the table.
  • Book a FREE consultation call with Alan and talk to a CPA who actually understands and cares for your business.
  • What matters the most is that you have a strategy in your budget that revolves around your business and where you want it to go.
  • As owners of our own law firms, we’ve made our fair share of mistakes.
  • When you know and monitor your numbers, you can quickly see when you’re off target and cut costs or make strategic investments to increase revenue.
  • The software will help your business collect payments through online invoicing.

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