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5 Essential Bookkeeping Tips for Law Firms

Running a law firm is a complex business that requires attention and presence of mind. 

Between managing cases and providing legal advice to your clients, your law firm finances can easily slip through the cracks. 

But don’t worry, here’s the good news: strong bookkeeping practices can help you go from a struggling law practice to a thriving one. 

In this article, we’ll discuss five essential bookkeeping tips and tricks for law firms so you can focus on your core business—winning cases—while keeping your finances organized and healthy. 

Let’s get started, shall we?

Separate Client and Business Accounts

Handling client funds can be tricky business for law firms, and if the IOLTA rules set by your State Bar Association are not carefully followed, you could end up in some disciplinary trouble. 

So, the first of essential bookkeeping tips is separate client and business accounts.

The most important thing is that your law firm has two distinct accounts: 

  • A client trust account 
  • A business operating account. 

Client trust accounts hold retainer fees and other client funds that the firm cannot use until legal services are rendered. 

Business operating accounts hold funds to cover the firm’s expenses, such as payroll, rent, and office supplies. 

Separating these accounts prevents the blending of funds and ensures client money is always protected. 

You can generally move funds from your trust account into your operating account once the funds are earned, i.e., if you bill 5 hours, you can transfer funds that equal 5 hours of work, or if you have a client meeting to prepare filing of immigration documents, you can transfer the funds. Remember, it’s important to have a record of the work completed either on your billing software or if you are using an invoicing system. 

Upgrade to Accounting Software

Law firms juggle complex billing with tracking every minute spent on a client’s case. 

You can’t track this information in a spreadsheet, like Google Sheets or Excel sheets. I personally believe that it’s a bad idea to use these spreadsheets to track time, which then allows you to bill your clients. It’s best to start with a specific solution for timekeeping or time tracking. 

Some legal accounting software can help with this, including: 

  • Effortless Invoicing: There will be no manual calculations or typos. The software generates accurate invoices in a flash.
  • Instant Reports: You will gain valuable insights with reports at your fingertips. No more scrambling for data.
  • Seamless Time Tracking: You can track billable hours with just a few clicks. No need to watch hours of YouTube videos to help you work Excel.

Instead of wrestling with formulas and worrying about errors, you and your staff can focus on providing excellent service to your clients.

Track Time and Expenses 

Accurate billing starts with thorough time tracking. Every phone call, email, meeting, and court appearance for a client needs to be documented. 

Legal accounting software can be consider one essential bookkeeping tips. Lawyers and staff can log their time with a few clicks, ensuring you bill clients fairly and accurately.

But it’s not just about billable hours. Expenses add up, too, from travel costs to printing fees. 

Here’s how legal accounting software simplifies expense tracking:

  • Effortless Logging: No more scrambling for receipts! Use mobile apps to capture expenses on the go or upload digital copies.
  • Easy Categorization: The software helps you easily categorize expenses, ensuring everything gets allocated to the right client or project.
  • Automatic Reports: Generate reports showing a breakdown of expenses for each client, saving you valuable time and effort.

With everything meticulously tracked and documented, you can say goodbye to lost receipts and hello to stress-free tax filing!

Reconcile Accounts Regularly

Reconciling accounts is like cleaning your financial house. 

It involves comparing your bank statements, which show your incoming and outgoing cash, with your own records of income and expenses within the software. 

This makes sure everything matches up perfectly. 

Regular reconciliation is important since it catches any discrepancies or errors before they snowball into more significant problems. 

You can make confident decisions about your law firm’s future with clean, up-to-date financial data. 

Review Financial Reports 

Financial reports are essential to keep track of your growth. They reveal trends in your revenue, expenses, and profitability.

By reviewing these reports regularly, you gain valuable insights. 

It’s like getting a financial checkup for your law firm, helping you make intelligent choices for the future. Here’s what you can uncover:

  • Resource drainers: Are specific practice areas costing more to run than they bring in? Reports can help you identify areas that might need adjustments.
  • Pricing sweet spots: Are your fees aligned with the value you deliver? Reports can reveal if you’re undervaluing your services or missing out on potential revenue.
  • Profitability patterns: Understanding your profit margins over time allows you to make informed decisions about investments, staffing, and overall financial strategy.

Regularly reviewing these reports is a roadmap to financial stability for your law firm. It empowers you to make data-driven decisions that ensure long-term success.

The Bottom Line

By following these five bookkeeping tips, you can use your financial reports to grow your law firm in a healthy way that focuses on profitability.

Implementing separate client and business accounts safeguards client funds. Legal accounting software streamlines tasks and frees up valuable time. 

Diligent time and expense tracking ensures accurate billing. Regular reconciliation keeps your financial data clean. 

Finally, reviewing financial reports allows you to make informed decisions that drive your law firm’s success. 

These tips are not just for million-dollar law firms. They are valid for new law firms and law firms climbing to the 7-figure mark. Streamline your workflow and gain peace of mind with our bookkeeping tips for small businesses.

And If you’re looking for expert bookkeeping for law firms, book a free consultation with us today.