4 Special Accounting Considerations for Law Firms

Recording them as anything but that could land you in hot water with regulators and mess up your taxes. IOLTA accounts are tricky, because they have very specific rules around what you can and can’t do with them, and the penalties law firm bookkeeping for breaking these rules can be severe, including disbarment. Once you’ve chosen a bank to work with, you’ll want to open a business checking account, a savings account, and an IOLTA (Interest on Lawyers Trust Account).

As a solo practitioner or small law firm owner, you have more important things to do with your time then manage your books. My team and I take care of your books for you, so you can get back to doing what you really love, practicing law. As a solo practitioner or small law firm owner, you have more important things to do with your time than manage your books. The Trust Reconciliation – the trust bank statement provides a third-party verification to the transactions posted to the trust account. Lawyers are required to deposit all short-term and nominal client funds in an IOLTA account.

Set up asset and liability accounts for your CTA

Do you have a “fire drill” at the beginning of each month when it’s time to prepare bills and some timekeepers don’t have their time in? If you cannot answer these questions to your own satisfaction, we can help. In many law firms, one employee handles all the bookkeeping and other back-office functions, leaving the company vulnerable during instances of illness, sick leave, or vacation. Beyond knowing how to assign billable hours and ensuring that invoices are sent and paid on time, take advantage of budgeting and financial analysis services.

• If you’re serious about growing your business, you need to team up with a Certified Public Accountant (CPA) early on.
• As a lawyer, when you receive cash that belongs to a client, you are obligated to hold those funds in a client trust account separate from your own money.
• Generate statements such as cash flow, profit and loss, balance sheets, etc.
• If you’re just starting out and think you’ve set up your accounting the wrong way, talk to a professional accountant or bookkeeper with experience dealing with IOLTA.
• Want to focus more on what you do best and stop worrying about whether or not your books are taken care of?
• Our core purpose is to enable collaboration between quality member firms to win, retain and serve clients with pan-national, international, and multinational needs.

Just be sure to verify your exact responsibilities with the State Bar Association and/or a professional accountant. It’s crucial to collect and organize your financial data regularly, not just at the end of the year. In our opinion, this is an oversight, as mismanaging these accounts can lead to serious consequences, even disbarment.

Invite Your Accountant

Bookkeeping requires dedication and attention just like everything else in your firm. We understand what it’s like to have everything fall on your shoulders. That’s also why we recommend eventually hiring a professional bookkeeper to ensure nothing falls through the cracks. By now, you know you can’t simply create a financial strategy and budget and sit back and relax. Using key performance indicators will help you know sooner if you’re on track. Our services for private companies range from audit and tax to consulting with a team that works to deeply understand your business and vision.

• Plus, no commitment or credit card is required, and you can cancel anytime.
• Following the above three best practices allows you to optimize your finances.
• Accrual accounting is a more sophisticated method that records revenue and expenses at the time they are earned or incurred, regardless of when you receive the money.
• This data lets you pick and choose the best clients to work with, identify what expenses you have that might not be worth it, and make sure you handle client money appropriately.
• Lawyers use the term “partner” more liberally than accountants.
• Our law firm accounting services are designed to automate your bookkeeping capabilities, manage your IOLTA accounting, and provide analytical insight to reduce overhead and increase profits.

While you didn’t get into law to practice accounting, putting in the work at the beginning will make it easier to file your taxes each year. Plus, you’ll save yourself the headache of dealing with accounting issues, and you’ll always have accurate financial statements available. Law schools offer little to no training on how to manage these accounts. So, many lawyers go into the field without knowing the best practice surrounding trust accounts and how to manage them. It would be best if you chose your legal accountant for their experience working with law firms, specifically those in your practice area and jurisdiction.

Synced from bank to books

Whether you need just a little bit of hand holding or more, we are here to help your law practice! Law firms can use double-entry bookkeeping as a way to better monitor the financial health of a company. Every business needs to have a bookkeeping and accounting process. Although the roles of bookkeeping and accounting are different, there is a thin line to distinguish between them. And a lack of professionalism can lead to losing your clients, referrals, and growth opportunities.

Each of these records should be kept for a specific length of time—some for 10 years, some for as few as three. You can learn more about record retention periods in our guide to business recordkeeping. You should also keep any other documentary evidence that supports an item of income, a deduction, or credit shown on your tax return. Bookkeeping is the process of recording daily transactions in a consistent way and is a key component of building long-term financial success. Putting it off means having to catch up at the end of the year—the more stressful and time consuming approach. Every business is different, and the “right bank” for you will depend on the nature of your practice and the way you prefer to get your banking done.

Then, set aside a time each week to make sure they are coded properly in your books. Your financial strategy will help you plan, strategize, and shift as you need to, helping you grow a financially healthy law firm. Each month, take some time to reconcile your budget compared to your reality, making changes that benefit your bottom line.