Five Legal Accounting Tips for Lawyers

Five Legal Accounting Tips for Lawyers

Think about to the moment when you first became a fully-fledged lawyer. You studied, interned, and did everything required to learn the ins and outs of the legal world —except learn about legal accounting. Whether you’re working independently or have a small to mid-sized law firm, you may have run into compliance issues and other dilemmas stemming from your business financials. Legal accounting is much more than cash flow—it also requires strict adherence to compliance law practices.

Here are five tips for lawyers to help you stay in line on accounting and tax compliance:

1. Use the appropriate tools

Did you know that most generic accounting software available doesn’t have functions for legal accounting? Unless you customize that standard program heavily, it’s not going to be appropriate for your firm and could lead to penalties. Therefore, you need to correct accounting software which would include tools to manage retainers, track billable hours, trust accounts, and be IOLTA compliant. The downside is that most of this legal accounting software is complicated, requiring a skilled bookkeeper to input data correctly.

2. Avoid double jeopardy

If you are following the structure of most law firms, you probably separate the business accounting and law practice management. This means that your staff would be entering data from two different places, exponentially raising the chance of error and double data entry. Consider having financial data entered from a single system to found a strong money trail, reduce the chance of costly error, and elevate productivity.

3. Know your firm’s cash flow

Legal firms have to carefully manage their cash flow, including the cost of keeping the doors open. You routinely pay for leasing the property, utilities, internet and phone, payroll, and more. When you know the overhead cost of running your firm, you get a clearer picture of how much income you’re truly receiving. Then you consider how much you make, tax to be paid, and beyond. From there, you can rethink your business model, if need be.

4. Categorize income

Firms can either specialize in one branch of law or work in several fields, but regardless of how your firm operates, one thing remains the same: categorization. Separate the income generated by various practice areas so you can track how much income each area is generating, fabricate strategies to increase revenue in lagging areas, and so on. This will also help organize and streamline the accounting process.

5. Maintain trust accounts

You use retainers to receive money from clients, but that fund doesn’t belong to you until a case is won or a settlement is made. Because of this, your firm might have multiple trust ledgers from an array of clients. Since trust accounts are reconciled monthly, you need to ensure none of them are accidentally mixed up or spliced together. Always be ready for an audit.   You’re a legal attorney, not a legal accountant—but that doesn’t mean you can’t learn standard bookkeeping and accounting practices. Once you know how to stay compliant and maintain your financial records, you can focus on running your legal business and winning whatever case comes your way.

Efortles is an innovative accounting firm that provides affordable flat-monthly-rate subscriptions to small business owners. Our monthly packages are all-inclusive for your compliance needs. Regardless it’s bookkeeping, payroll processing, sales tax reporting or income tax return preparation, we have got your back.