Law firms have little to no wiggle room for bookkeeping mistakes. Other professional services may face loss of reputation and take a financial hit if they make a mistake. As a law firm, you will be managing your firm’s own finances, plus clients’ money. You could end up in serious hot water if you don’t follow trust accounting laws. Bookkeeping for law firms takes the best of the best minds.
Are you growing as a law firm? It might be time to look into assistance from experts who know about law practice bookkeeping. Read on to learn about the importance of trust accounting and more.
Why bookkeeping matters for law firms
The precise laws for managing your firm’s accounting and trust accounts will depend on where you operate. In NSW, for instance, the Legal Profession Uniform General Rules 2015 will largely inform how you record your firm’s financials and report on all trust accounts within your control. Simply put: good bookkeeping for law firms keeps them compliant.
Beyond the need to keep a governing eye satisfied, reliable bookkeeping practices also improve your overall business. When you aren’t playing catch up with your bookkeeping, you will have a better view of your organisation’s financial health. This includes:
- Cash flow. How much cash is actually coming in and out of your firm? Knowing this critical information helps you plan for the future and spend wisely.
- General ledger maintenance. Every transaction in your law firm should be recorded twice: once as a debit and once as a credit. If you spend $1,000 on paper supplies, you have $1,000 less in cash on hand, but $1,000 more in office supply inventory. Accurate bookkeeping helps you keep an honest ledger.
- Payroll expenses. For law firms, salaries and other benefits make up a huge portion of your overhead. You can offer responsible pay increases and bonuses only if you know what you can actually afford.
- Protect assets. It’s imperative for a law firm to protect its assets with smart investments and a reasonable budget. Good bookkeeping keeps your firm’s overall interests top of mind.
Best practices for law firm bookkeeping
The needs for your firm will be unique. That being said, there are some common best practices that apply to nearly any law firm. As you begin an inventory of your law firm’s financial health, keep these must-dos on your checklist.
Set a budget
A bank account in the red can only lead to disaster. Use insights from your bookkeeper and CFO to draft an annual itemised budget.
Stay on top of trust accounting
In addition to setting up a client trust with the law firm’s name property cited, there are rules regarding record keeping of trust accounts. Your firm must keep, in printed or computerised form: a copy of the trust’s receipts and payments, a copy of reconciliation statements, a copy of the trust’s debts and lenders, and a list of controlled money accounts and their balances. These must be drafted each month. You must also keep detailed records of deposited funds for trust accounts.
Use detailed financial reporting to identify opportunities
The more refined your data, the better it can inform your decisions. A good bookkeeper will generate regular reports that reflect your spending and income and pass them along to you or your CFO. Once in the hands of your highest financial executive, your reports can turn into the inspiration for new opportunities to grow your business or cut some fat.
Read More: Visory’s Reporting and Insights
Avoid data entry errors
Data entry errors are a self-inflicted injury that needn’t happen. Double-entry bookkeeping can help you avoid many of these mistakes, as can working with good accounting software. Keep in mind that your law firm finances may require a different software than your trust accounts. There are specific software programmes available for trust accounting — these software systems are compliant with local trust rules and regulations and can assist you from making errors.
Outsource bookkeeping for your law firm
You may need the help of a professional bookkeeper. If you don’t know where to start, a bookkeeping service is a great jumping off point. They can connect you with professionals who know all about bookkeeping for law firms and how to avoid common pitfalls. Plus, an outsourced bookkeeping team keeps your overheads low and doesn’t require you to clear out an office.
Are you ready to make monthly accounting and annual tax returns a lot easier? Enlist the help of a trusted team.