Businesses of all forms need to track down their finances and manage their general bookkeeping functions. A law practice, at its core, is a business. You have spent years of training to become a lawyer. During that time, you certainly have learned nothing regarding how to handle your law firm’s accounting services.
Every law firm owner needs to know what legal bookkeeping and accounting are for their business. Without the essentials, your firm might struggle to stay compatible with the ethical rules. Setting up an appropriate structure for law firm accounting services is a valuable use of time. To help you follow the best practices and avoid some common mistakes, we have created a guide for you.
In this guide, we have summarized some methods that can help your law firm make smart money decisions.
Why Accounting and bookkeeping matters
Accounting and bookkeeping work with the financial figures of a company. Though these two are two separate terms together they can help your firm grow and succeed financially. Having a deep understanding of these two can help you figure out your finances systematically.
Bookkeeping is tracking the money coming and going out of your business. Basic bookkeeping tasks include
- Tracking your financial transactions
- Creating and sending invoices
- Running payrolls.
Accounting is how you use your financial data provided by the bookkeeper to prepare the financial statements. Some basic tasks on an accountant for lawyers include:
- Preparing monthly income and balance sheet statements
- Managing taxes
- Healthy and legal cash flow advice.
Now that you’re clear between these two, here are some best services for your law firm accounting services:
Cash vs accrual- choose an accounting method:
Before setting up your bookkeeping, you need to select an accounting method. Most law firms have two options for their bookkeeping
- Cash accounting method
- Accrual accounting method
Which method to choose?
Most law firms choose a cash accounting method as it is more beneficial. You can keep a look at your bank balance at any time to understand the amount of money available. Also, this method is easier and will free up your time to work on building your practice.
Select the best law accounting software:
Never be afraid of using technology to help your business. Accounting software will make it easier for you to manage your client’s funds. If you’re determined to handle your law firm’s book yourself, here’s a list of software that you might use:
QuickBooks is the leading accounting software for integrating into practice management software. This makes it the first choice for lawyers. QuickBooks pricing model is still a “software as a service”, though you can still pay a monthly fee.
Xero is a fast-growing online software option. Xero is cheaper than QuickBooks. So if you’re looking for something outside of QuickBooks you can consider it for starting up.
● Less accounting
Less accounting offers an initial plan in which you can pay a monthly fee to access their software and manage your books. You can consider this software while your firm is still in its growing phase.
Consider professional help
Hiring a financial expert will bring you peace of mind. You would know that all your business’s finances and tax season are done right.
Many business owners think that just hiring an accounting expert would do for them, as they will cater their bookkeeping themselves. Here are some common mistakes that they might make:
Interest on lawyers trust accounts (IOLTA)
As a lawyer, when you receive cash that belongs to a client, you have to keep that money separate from your money into a client’s trusted account. These funds are commonly known as IOLTA accounts.
Managing these accounts is a big hassle as you have to make sure that each client’s IOLTA balance on your firm’s book adds up on your IOLTA account.
Making entry mistakes
When recording your debits and credits you might end up making some unknown errors, now all your time will be wasted in detecting that error.
Mixing up personal and professional expenses
This is the most common mistake that can cause a lot of problems in claiming expenses and tracking the financial health of your firm.
Hiring a bookkeeper and accountant will save you so much time that you can spend focusing on growing your firm.
Once you grasp some of these basic methods and start implementing them. It will help lessen your burden from your firm’s legal accounting side and help you focus more on the growth side.