Accounting For Law Firm: 5 Common Legal Accounting and Bookkeeping Mistakes

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. Do your due diligence and make sure every dollar going into the trust account is supposed to be there. You should only ever charge your clients fees directly related to their account.

• As the managing partner or managing attorney of your small or medium-size law office, your time is precious.
• For instance, if you’re eating out, you may record whom you’re with and what you discussed.
• It is essential for law firms to maintain a professional reputation in order to ensure the success of their business.
• Sometimes attorneys collect their fees from a case settlement or favorable judgment.
• Invoicing is extremely exhausting without the right law firm accounting software.
• Double-entry accounting aids in the detection and prevention of accounting errors.
• Even though interest rates on business accounts are traditionally low, having a cash surplus in a business savings account can improve your likelihood of being approved for a loan.

With a billing model on hand, a practice can more effectively (and consistently) navigate the steps of client invoicing. Client invoicing includes gathering client billing information, such as name, address, and bill amount. Once this information has been verified, a law firm can create an invoice with invoicing software and pre-made invoice templates to be sent via mail, email, or even through the software itself. That helps ensure that clients are being billed appropriately for attorney services and that bills are going out to the right people and places in a timely manner. It also streamlines the process, which significantly reduces the margin for error and creates a smoother process that minimizes the time law firm billing personnel must spend on this task.

Thinking you can do everything without professional help

No additional software is necessary to access the powerful accounting and bookkeeping tools that you would expect to find in high-quality programs. Whatever it is you need to do, you are likely able to do it with CosmoLex. However, taking on tasks above and beyond your duties is never a good idea, especially accounting and financial management tasks. As with the law, too much can go wrong if you don’t have the right professional in charge.

We’ve seen firms using these accounts to hide assets or as a savings account. The reality is that there is no scenario where it’s okay to use your IOLTA in this way. Just be sure to verify your exact responsibilities with the State Bar Association and/or a professional accountant. Your business operates as its own entity with its own credit rating.

Manage money correctly and stay in compliance

It is well known that lazy bookkeeping costs you money and time, will produce sweaty nightmares, and may put your license at risk. In addition to accurate reports, good law firm bookkeeping can simplify billing and provide a more clear picture of your law finances on demand. In law firm accounting, two types of methods exist the cash method and the accrual method. With the cash method, transactions are recorded as soon as the cash is exchanged, regardless of when they happen. As with any other part of your business, bookkeeping demands dedication and attention.

That’s also why we recommend eventually hiring a professional bookkeeper to ensure nothing falls through the cracks. By now, you know you can’t simply create a financial strategy and budget and sit back and relax. Using key performance indicators will help you know sooner if you’re on track.

Don’t commingle operating and CTA funds

Once you factor in client invoicing, bookkeeping, and financial reporting, financial management can become significantly more complicated. This ultimate guide to law firm finances will break down everything you need to know to drive profits and limit expenses for your legal practice. Aside from revenue and income, tracking billable hours can also be challenging for busy lawyers and law firms.

Practice management software is an important tool for legal bookkeepers. It can streamline and automate processes, reducing the amount of time spent on bookkeeping and allowing law firms to focus on more pressing matters. Proper integration with other bookkeeping tools is essential law firm bookkeeping in order to maximize the benefits of practice management software. Recent technological advancements have made accounting easier for firms. Spreadsheet software and software that helps manage financial records are some of the tools available to help with accounting.