Law firms big and small find accounting quite frustrating. There is no shame admitting bookkeeping is not your specialty. If you are struggling with accounting tasks in any way, be proactive, follow the tips detailed below and it won’t be long until you are in full control of your books regardless of what types of challenges arise.
Track Income According to Each Practice Specialty
Though your law firm might have a niche, your legal team likely practices in several areas of the law. The manner in which your firm bills clients might differ based on the type of case. Start tracking income according to each practice area or even by each individual case type and it will be that much easier to understand the areas of your practice that bring in the most money. Maximizing income will facilitate data-driven choices and ultimately bolster your firm’s financial success.
Use Legal Accounting Software Instead of Generic Accounting software
Law firms that strictly rely on basic accounting software suited for all different types of businesses typically prove incapable of maintaining full compliance. Though it is possible to customize business accounting software several times over, doing so is egregiously expensive and time consuming. Every law firm needs nuanced legal accounting software with fully customized reporting that guarantees complete compliance. So don’t try to cut corners by using a cheap generic accounting software. Pay the premium for legal accounting software and you will have all the bookkeeping tools you need to remain fully compliant and numerically accurate.
Maintain Accounts That are Always Audit-ready
The average law firm has several clients with a multitude of trust ledgers. Such accounts should remain distinct from one another at all times. Do not use trust funds to cover your firm’s expenses. Furthermore, trust accounts should be reconciled each month. Keep your trust accounts and all other accounts audit-ready and you won’t sweat the prospect of an audit.
Mind the Order of Revenue Receipts
If invoices are not paid in full, your firm should allocate receipts for revenue in a precise manner. Do not apply such funds to income until liabilities and costs are covered. This process will prove that much easier with the prudent use of legal accounting software. If generic accounting software is used, invoice payments should be split manually to distinct accounts in the general ledger.
Don’t Forget About the Firm’s Expenses
Client billing has the potential to prove so stressful and complicated that it is possible for your law firm to lose track of its expenses. From the cost of electricity to payroll, the office lease and beyond, law firms have a bevy of expenses to mind. Furthermore, reimbursement for direct matter costs is different from reimbursement for indirect matter costs.