Accounting for Law Firms: A Guide Including Best Practices

Supporting Strategies offers a range of outsourced bookkeeping and controller services that will transform the financial management of your law firm. In fact, some bookkeeping tools integrate with your practice management tools, allowing you to easily track your clients, invoices, and more. Make sure whatever tool you use integrates, or choose an all-in-one software for both.

• Bookkeepers track your finances so you can view at a glance how much money is entering and leaving your business.
• You’ll also identify what areas of your firm (practice areas, types of clients, etc.) are most profitable.
• You’re required to do this every 30 to 60 days depending on your state — be sure to check your state’s rules.
• Unique payment methods make accounting for law firms different from other types of accounting.
• However, this method does not recognize accounts receivable or accounts payable.
• The terms bookkeeping and accounting can sometimes be used interchangeably.
• Plus, if you want to outsource to accountants or legal bookkeepers, having a solid foundation will make it 10x easier.

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. Your firm needs to keep track of your invoices so you know what money is owed (and who you owe money to) to avoid this problem. Not all accountants are familiar with the rules and regulations governing these accounts, nor do they know that the rules change with each jurisdiction. If you sent your client an invoice, that is immediately counted as revenue if you don’t receive the money for weeks. If they have to dig through your personal account to find the odd business transaction, you’re giving them extra unnecessary work and will be charged for it.

Should Your Law Firm Hire a Bookkeeper and an Accountant?

Your business operates as its own entity with its own credit rating. With organized financial data, you can better identify opportunities to reduce your overhead, earn more money, and plan for the future. These are funds you must keep separate from your firm’s operating funds.

The advantages of legal accounting software multiply with today’s cloud-based solutions. While on-premise accounting software ties you to a physical location and requires high maintenance costs and time-consuming updates, cloud-based accounting software is accessible anywhere. Cloud-based accounting software for law firms also automatically gets updated and backed up, offering unparalleled, real-time insights into your firm’s financial data. Keeping accurate records of your law firm’s accounts is a challenging yet vital part of running a legal practice. 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.

KPIs to Track and Successfully Manage Your Law Firm

Insights on running a successful law firm with case management, client intake, billing and payments, tech innovation, and more. Solutions without built-in, specialized law firm accounting features require a high degree of customization and can only be used by a highly trained law firm accountant. And frequently, the required customization can make the software cumbersome and more difficult to use. 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. At Supporting Strategies, small business bookkeeping and controller services is our core business.

Lastly, transactions are not recorded until you receive the money, so it’s not taxed until it’s actually in the bank. When you incorporate your business, you essentially separate yourself from the business entity. It’s called the “corporate veil,” and it protects business owners and their personal assets from legal action taken against the company. Plus, the more time and effort your accountant has to put into organizing your transactions, the more you pay them.

FINANCIAL SOLUTIONS THAT GROW YOUR FIRM

These actions will mitigate your risks of incurring a penalty. At Lescault and Walderman, we understand accounting for law firms and the importance of accurately billing time and leveraging financial data to make operational decisions. And we know what it’s like to face strict regulatory standards, and carry the fiduciary responsibility when managing Trust/IOLTA accounts. Our law firm accounting services are designed to automate all of your internal processes- ultimately saving you time and money.

While you don’t need to familiarize yourself with an accounting encyclopedia, it will pay off to learn some common terms. You’ll run into them often, and knowing the basics will help you stay in the know. First, let’s differentiate between accounting and bookkeeping — two terms that are often used interchangeably but really shouldn’t be.

You can’t wait until right before tax time to start tracking your finances. In fact, you can’t even afford to wait a week until you make time to enter your transactions. We recommend scheduling a time to track your finances at least weekly. Bookkeeping requires dedication and attention just like everything else in your firm. We understand what it’s like to have everything fall on your shoulders. That’s also why we recommend eventually hiring a professional bookkeeper to ensure nothing falls through the cracks.

Cash accounting is also beneficial because you can look at your bank balance at any time to understand the amount of money available. Since revenue isn’t recognized until the cash is paid, there are no income taxes until the money is in your bank account. Most law firms accept electronic payments, like debit and credit.

A chart of accounts is a list of all your firm’s financial accounts, usually used by an accountant and available for bookkeepers. Account numbers of the chart of accounts are structured to suit the needs of your law firm, the jurisdiction, and the practice area. Typically, there are 5 core categories consisting of assets, liabilities, owner’s equity, revenue, and expenses. Once you understand the basics, consider hiring an accountant, either as a contractor or as an employee. They can help level up your firm and make the legal accounting process even smoother by adding legal accounting and legal practice management software to your firm’s toolkit. Using legal technology can ease the workload of manual tasks while helping your firm meet its goals—avoiding errors, ensuring compliance, and staying organized.

• A chart of accounts is a list of all your firm’s financial accounts, usually used by an accountant and available for bookkeepers.
• We found Lescault & Walderman while setting up our new law firm.
• As owners of our own law firms, we’ve made our fair share of mistakes.
• This could be putting your firm at a significant disadvantage as inadequate law firm accounting software can lead to excessive billing process errors and inaccurate time tracking.
• You can use the same IOLTA for multiple clients, but you must have a reliable method to track each client’s running balance.
• Caseware is the leading global provider of cloud-enabled audit, financial reporting and data analytics solutions for accounting firms, corporations and government regulators.