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With this guide, you’ll understand key financial concepts, financial levers affecting your business, best practices for billing and collecting money, and how to manage and outsource financial work. Have you ever tried to balance your checkbook, only to find you’re a quarter off somewhere? One number mistake on your law firm’s books can cause pandemonium. That’s why it’s important to take your time, double-checking your entries as you go. Your financial strategy will help you plan, strategize, and shift as you need to, helping you grow a financially healthy law firm. Each month, take some time to reconcile your budget compared to your reality, making changes that benefit your bottom line.
All while saving you time since you will no longer need to try and perform these tasks yourself. Not to mention, having access to up-to-date financial statements instantly is a great benefit. The value of this is immeasurable as it insulates your business from many costly and dangerous risks. Plenty of people believe bookkeepers’ work is primarily centered on data entry and some even mistakenly believe bookkeeping is tied to tax roles.
Bookkeeping vs. Accounting: What’s the Difference?
While new business owners may want to run their firm in a relaxed way and not set any budget, we don’t advise it. Before the IOLTA, lawyers would store this money in a non-interest-bearing checking account, as they are not allowed to benefit financially from storing a client’s money. When a lawyer holds onto a client’s money, they store it in a trust account. Having a legal bookkeeper on your team can save you a lot of time and money in the long run. For example, if a law firm has multiple partners, each with their own areas of focus and billable hours, the bookkeeper will need to be able to track this information correctly. For example, if a lawyer has $10,000 in their business account and $5,000 in their trust account, they would need to deposit the $5,000 into a separate trust account.
While a bookkeeper keeps the day-to-day data accurate and updated, a Controller can help you set up and oversee your financial system and accounting infrastructure. Controllers often oversee the bookkeeper’s work, reconcile the accounts, and make more significant ledger adjustments. But law firm bookkeeping setting up your finances properly won’t just make it easier to file your taxes each year—it’ll save you time, money, stress, and potentially legal trouble (yes, really!). Accounting for law firms becomes so much easier when you work with an accounting professional from the beginning.
Overall stats of a small client
As an attorney, you may be aware of state bar requirements for trust accounts, but that doesn’t prevent you make mistakes. The most common mistakes are putting funds in the wrong account, accidentally or intentionally withdrawing funds, fail to report monthly, and so on. Poor management of trust accounts can lead to penalties, suspension, or even losing the right to practice law. Just as with hiring an internal bookkeeper and defining their role, you’ll have to decide which pieces of your financial management make sense to outsource including the bookkeeping function.
MyCase helps increase accuracy and peace of mind by providing you with all financial data (billing, payments, expenses, banking) under a single platform. This feature also eliminates duplicated data entry or the hassle of reconciling accounts. One of the easiest ways to secure an experienced, certified, professional bookkeeping service is to outsource to a complete bookkeeping service comapny. And after utilizing their services, you may just find that your company couldn’t afford to not outsource these functions. Many times, switching to an online bookkeeping service is a beneficial move for a company. Not only do they ensure that books are maintained properly to avoid costly mistakes, fees, and penalties, but they can also help alert you to waste and mismanagement of supplies and inventory.
Zoho Books
If you’re going to make an accounting error, it’ll likely be with your trust and IOLTA accounts. This data lets you pick and choose the best clients to work with, identify what expenses you have that might not be worth it, and make sure you handle client money appropriately. Whether you’re a solopreneur or run a firm with a hundred lawyers, knowing where every dollar is going will help you make better decisions for the firm’s health. You’ll also identify what areas of your firm (practice areas, types of clients, etc.) are most profitable.
The key is to actively monitor things so you know when and what to adjust. If you’re missing your budgeted numbers, you can reduce expenses, delay one time purchases, increase sales through more aggressive marketing or advertising, or lower your profit expectations. When you know and monitor your numbers, you can quickly see when you’re off target and cut costs or make strategic investments to increase revenue.