Can you remember why you first wanted to become a lawyer?
Helping the defenseless, high earning potential, and an intellectual challenge may have been a few of the reasons why. Diving into the exciting world of legal accounting was probably not high on your list!
Whether you’re an independent attorney or own a small to mid-size firm, you face unique challenges when it comes to your business’s financials. And the penalty for not keeping a close watch will be more than a stern look from a judge.
Here’s five accounting tips for lawyers to keep your numbers in order beyond a reasonable doubt.
- Use the right tools
You didn’t go to art school to study law – so why are you using general accounting software for your law firm? Most out-of-the-box accounting programs can’t handle the unique financials of a legal practice without extreme customization. Whichever software you go with, make sure it can help you manage retainers, trust accounts, and track billable hours by client.
- Avoid double jeopardy (or double data entry errors)
If you’re like most law firms, your management and business accounting are in two separate systems. When data has to be entered into more than one place, the chance of errors increases. Maintaining all of your accounting into a single system builds a stronger money trail and reduces time spent in data entry.
- Carefully maintain your trust accounts
Trust accounts are one major way your law firm’s accounting is very different from most businesses. You may often be in receipt of client retainers that don’t actually belong to the firm until the work has been done, or handle settlements on behalf of your clients. It’s critical to ensure that funds are kept separate and reconciled monthly so you can always be ready for an audit.
- Keep your firm’s expenses in mind
One thing your firm does have in common with other businesses is that there are costs involved with keeping the doors open. Your office lease, phone, internet service, and more are all part of the cost of doing business. Tracking these expenses separately can help you plan for the future and inform the way you bill clients.
- Track income by practice area
If your firm specializes in more than one area of law, tracking income by practice type can help you understand which area generates the most revenue and how to make changes that increase profits.
Remember, you’re a lawyer, not an accountant – and that’s ok! Using the right software and having a bookkeeper who understands the in’s and out’s of legal accounting can help you maintain order in your books while you maintain it in the courtroom.