Best practices for legal bookkeeping every law firm needs to know

Law firm accounting services ensure your financial foundation is solid and well-managed. By leveraging their expertise, firms can stay compliant, improve cash flow, and reduce the risk of costly financial mistakes. This means more time for what matters most—advocating for your clients and growing your practice. This includes preparing tax returns and reconciling bank statements with general and client ledgers.

Commingling funds

Attorneys who neglect proper financial management risk penalties, reputational damage, and lost profitability. Failure to maintain accurate trust accounting can result in severe penalties, including license suspension. A CPA ensures deposits, disbursements, and reconciliations comply with all state regulations. Once a firm reaches 15 to 50 employees, it’s time to build out a more formal financial infrastructure. This often means creating internal processes for budgeting, approvals, payroll, and multi-level reporting.

Y-Hire Accounting Manager

You can log hours directly from your calendar, use timers, or track activity in bulk. Each entry is matter-specific, with custom increments and activity https://thebossmagazine.com/post/how-bookkeeping-for-law-firms-strengthens-their-finances/ types. This helps you meet firm expectations, minimize lost hours, and stay compliant with internal policies and client requirements.

Neglecting expense tracking

For example, let’s say a law firm incurs a $700 travel expense for an attorney to attend a deposition related to two different client cases. Every business expense incurred by the firm, whether it’s office supplies, travel costs, court filing fees, or continuing education expenses, must be documented with receipts. These transaction records are required for tax purposes and to ensure transparency in billing clients.

Accurate record-keeping

Virtual bookkeepers specializing in law firms often possess extensive experience working with diverse legal practices and a deep understanding of industry-specific regulations. Many hold bachelor’s degrees in accounting or finance and boast certifications from reputable organizations like the American Institute of Professional Bookkeepers (AIPB). You must track billable hours accurately to avoid underbilling clients and losing revenue. For example, a lawyer might forget to track time spent on a phone call with a client. Implement a robust time-tracking system and ensure all attorneys and staff adhere to it. Each jurisdiction has specific guidelines for managing retainer funds, so make sure your law firm is compliant with state bar trust accounting regulations.

• A skilled bookkeeper helps ensure accuracy and gives attorneys more time to focus on their clients.
• Some investors also prefer accrual accounting since it more accurately records income and expenses when they were earned.
• For example, a lawyer might forget to track time spent on a phone call with a client.
• With bookkeepers and accountants from QuickBooks on your side, you’ll have more time to focus on serving your clients and growing your practice.
• Instead, the interest is pooled and used to fund legal aid programs that help low-income individuals access legal representation.
• While often used interchangeably, bookkeeping and accounting serve distinct roles.