law firm bookkeeping

The entire process can be unreasonably time-consuming and filled with opportunities for inaccuracies. Law firm bookkeeping records the financial transactions and balances the financial accounts for your firm.

If any of these balances don’t match each other, that means there’s a mistake in one of your ledgers. To fix it, you have to go over each transaction to make sure it was entered into your accounting system properly. Recording them as anything but that could land you in hot water with regulators and mess up your taxes. Legal billing features let you bill securely, create branded invoices, and automate billing, so you can get paid faster. Law firms can use double-entry bookkeeping as a way to better monitor the financial health of a company. Through her business, The Legal Writing Studio, she helps legal professionals deliver effective written messages. Erika is a regular contributor to TimeSolvand a variety of other publications.

Choosing an accounting method (cash vs. accrual)

It will be much easier to pick a few numbers and keep those top of mind. CPAs use their expertise and an analysis of your finances to guide you in the right direction when you’re looking to secure a loan. For example, they can help you choose a loan type and size that’ll fit your bottom line in the best way.

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. When you don’t collect funds that you’re owed, you miss out on law firm bookkeeping revenue and are essentially working for free. And when you’re missing out on 12% of your billable hours, that’s 4.8 hours in a standard 40-hour workweek. Not all income is revenue — this is a distinction that needs to be made or you could have to deal with inaccurate bookkeeping.

Ensure Easy Expense Reimbursements

Next, you’ll withdraw money from the IOLTA account and transfer it to your firm’s account after invoicing a client and receiving their approval to pay the fees. Bookkeeping is an ongoing task that is performed daily, weekly, or monthly (if you’re adventurous). Daily bookkeeping gives you better information about the financial state of your law firm, while monthly bookkeeping will keep you guessing.

IOLTA accounts are designed to keep client funds separate from your typical business or operating account—where you are allowed to accrue interest. Making the jump from an attorney to running a law firm can bring a ton of new intimidating challenges. Legal accounting and bookkeeping are surely one of the largest you face. That’s why we recommend you should hire a professional legal account.

See if you’re eligible for business financing

Cosmolex combines legal practice management software with legal accounting software for a complete solution. It’s actually completely cloud-based, so you don’t have to install it on a computer, rather it’s accessed online through a browser. Bookkeepers record the financial transactions and balance the financial accounts for your firm.

  • And without proper care, it’s easy to slip up and make a dangerous error.
  • You can also use this information to identify what parts of your practice are most and least successful—so you can more thoughtfully allocate resources to stimulate future growth.
  • In our opinion, this is an oversight, as mismanaging these accounts can lead to serious consequences, even disbarment.
  • If your law firm doesn’t already have business bank accounts, it’s time to open them.

We don’t recommend building your business off the back of your credit card. The interest rates are high, limits are often lower than other forms of credit, and they’re easily mismanaged. Your business operates as its own entity with its own credit rating. Your checking account is self-explanatory — its primary purpose is managing business revenue. After selecting your bank, you want to open the necessary accounts. Plus, if you want to outsource to accountants or legal bookkeepers, having a solid foundation will make it 10x easier.