Law Firm Accounting and Bookkeeping: Tips and Best Practices JurisPage Legal Marketing

Once you develop a bookkeeping system, business owners will want to consider working with a CPA or professional tax accountant around tax time to handle tax returns. While there are some outsourced services that offer this functionality, so far I’ve found that working with individuals law firm bookkeeping services and small accounting firms is better for this task. Here’s the list of tax accountants that we’ve vetted at the Biglaw Investor. When you take funds out of your business for personal use, it can either be classified as a capital withdrawal or as a payment for salary.

Accounting software where you download transactions can help avoid this error, as can double-checking entries as you go. The most powerful solution to this problem is taking the time to update your books frequently (or outsourcing your bookkeeping to a team that will reconcile the numbers for you). You’re busy providing legal services and developing business, so that Uber expense to meet a client sometimes falls through the cracks. It’s best to record these expenses as they happen, but realistically there will be times when you forget. Cash accounting is also beneficial because you can look at your bank balance at any time to understand the amount of money available.

Final thoughts on accounting and bookkeeping best practices

Yet, if you own a small firm with multiple attorneys, employees, or contractors, hiring a bookkeeper is more than worth it. You now have all of the information and tools needed to get your law firm’s accounting where it ought to be. Thankfully, there are a lot of tools available to help you manage your trust accounts, so you don’t have to go at it alone. If you own a business, you need to get good at recordkeeping.

But the way they go about it is different, doing different tasks for the good of your law firm. This guide will provide an overview of law firm bookkeeping, some best practices to follow, mistakes to watch out for, and tools to make the whole process easier. While there are a lot of factors to balance, here are the essentials for law firm accounting and bookkeeping success that you should get a handle on ASAP. Beyond just staying organized and compliant, following best practices for accounting for law firms will help you identify growth opportunities.

Ensure you have the right bank accounts set up

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. A legal accountant and bookkeeper will work towards the same goal — they both want to keep your law firm financially healthy and built for the future.

Whenever there’s a change in one category, there should be a corresponding and equal change in another in order to keep the sheet balanced. If you have a debit in one account, it follows that there will be a credit in another account. In this system, all transactions are categorized as one or the other. In 1981, this money started being stored in an IOLTA, which is an interest-bearing account. Ask around to see if other attorneys have a recommendation, or ask your State Bar for referrals.

Why is Law Firm Accounting Important?

With that information, you can better understand your firm’s financial health and plan for the coming months. From sending payment requests and tracking them to integrating with your go-to legal software products, LawPay will fit your needs. LawPay also ensures your law firm accepts payments that comply with your state bar’s regulations surrounding trust (IOLTA) accounts and the American Bar Association (ABA) guidelines. 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. The following guide explains the fundamentals of law firm accounting and bookkeeping.

As a secondary layer of reconciliation, you’ll also need to make sure that each client’s IOLTA balance on your firm’s books adds up to the total balance of your IOLTA bank account. Follow these rules and keep track of client funds every day to ensure you don’t cross any lines that can cause your firm serious problems. Speaking of expenses, one of the most common mistakes attorneys https://www.bookstime.com/ make is losing track of business expenses. It’s best to capture and record your business expenses on the daily, so you don’t lose those receipts or invoices. Then, set aside a time each week to make sure they are coded properly in your books. Your financial strategy will help you plan, strategize, and shift as you need to, helping you grow a financially healthy law firm.

Bookkeeping Services for Lawyers

Of course, the line between bookkeeping and accounting can get blurred. Some accountants record financial transactions, and some bookkeepers assist with business decisions and prepare financial statements. Keeping accurate records of your law firm’s accounts is a challenging yet vital part of running a legal practice.

Following the above three best practices allows you to optimize your finances. In our opinion, this is an oversight, as mismanaging these accounts can lead to serious consequences, even disbarment. Your budget is a vital tool for keeping you in control of expenditure and making sure you’re not overspending. You want to pay attention to the ABA’s rules, as not doing so could lead to some severe consequences.