Running a legal practice is demanding, you have a lot of things on your plate. In addition to following up with clients and preparing for court proceedings, you also have to ensure that your accounts are in order. But keeping up with your finances can be incredibly complex, no matter what the size of your firm might be.
In order to help, we have outlined 8 bookkeeping tips for your law firm. Implementing these proven strategies can help avoid the common pitfalls that are often associated with legal bookkeeping.
Accounting vs. Bookkeeping for Legal Practices
Oftentimes, the phrases “accounting” and “bookkeeping” are used interchangeably. However, this is not quite accurate. Bookkeepers are tasked with accurately recording financial transactions. Accountants interpret, analyse, and summarise this data.
Your legal practice will likely need both accounting and bookkeeping services. When used together, these services can help you to account for every dollar spent and earned throughout the course of a financial year.
Tips for Law Firm Bookkeeping
When handling the bookkeeping responsibilities for your legal practice, it is essential that all transactions are accurately recorded. By following the tips below, you can improve your law firm bookkeeping practices.
1. Don’t Mix Personal and Business Expenses
While it may seem like it saves time to mix your personal and business expenses, this is a huge mistake. Even if you are operating a small legal practice, different types of expenses must be tracked separately. Over the course of a year, it can be easy to confound personal and business expenditures, which will make it more difficult for you to report your taxes properly.
You should have a separate account for your business expenses and never use your personal account or credit card for business-related activities. By maintaining separate accounts, you will find it much easier to track your expenses throughout the year.
2. Outsource Your Bookkeeping: Use a Bookkeeping Service like Visory
If you really want to optimise your legal practice bookkeeping, then you should consider outsourcing through a company like Visory. We offer online bookkeeping and accounting services that can scale with your business.
Our experts do more than simply clean up your books. We provide industry-specific reporting and insight to drive new growth. We offer fixed monthly subscriptions with custom-tailored service packages.
3. Track Your Practice’s Finances Constantly — Don’t Wait Until Tax Time
One of the best things you can do to improve your bookkeeping practices is to track your finances regularly. You should compile weekly and monthly finance reports that detail every transaction. Keep this information well organised so that you can easily access it at the close of your financial year.
If you wait until tax time, you could find yourself scrambling to gather transaction data. This means that you could miss out on some great tax deductions and end up paying more than you should at the end of the year.
4. Maintain a Chart of Accounts
A chart of accounts is a list of your legal firm’s General Ledger Accounts, from the first asset account through the last expense account in your legal practice’s accounting books. Maintaining a chart of accounts is a great way to support quality reporting.
Creating these charts is only half the battle. You must also update them regularly to ensure that all information is accurate. While it may seem tedious, maintaining account charts is a great way for lawyers to stay organised. If you don’t have the bandwidth to do this yourself, a good bookkeeper can manage a chart of accounts for you.
5. Stay Up-to-Date on Trust Accounting
Maintaining your Trust Account is a crucial part of compliance for legal practices. This can get difficult if you don’t have a bookkeeper experienced in dealing with Trust Accounts.
An experienced bookkeeper will ensure that your Trust Account is reconciled regularly and in line with your accounting software to help ensure that you stay compliant at all times. Even a small discrepancy could result in penalties from regulators.
6. Use Bookkeeping to Identify Opportunities
Did you know that accurate bookkeeping can actually help you increase cash flow and grow your business? When leveraged properly, bookkeeping can provide valuable insight into your firm’s finances and long-term outlook. You can identify trends, improve income tracking capabilities, and better manage your funds.
Ultimately, you will be able to use this information to refine your business practices. You can reduce waste and maximise your profitability. In turn, you will have additional funds available to scale your business.
7. Avoid Data Entry Errors or Leaking Money
While our next tip may sound like a given, data entry errors are actually extremely common. Even a seemingly small mistake can throw off your entire bookkeeping process. To make matters worse, it can cause your firm to start leaking money.
There are four common sources of revenue leaks in the average law firm. The first can be attributed to recording errors. If you are not accurately documenting all billable hours, then you are essentially giving away free legal services.
The second common cause of lost revenue is billing at rates that are too low. The third source of revenue leaks is the over-use of write-offs. While most law firms use write-offs, inaccurate record-keeping could lead to accidentally subtracting too many hours.
The final cause of lost revenue for your firm is not collecting on all billed services. Accurate data entry practices help you to keep track of all billed services and ensure that clients pay what they owe.
8. Track Your Tax Deductions
While you must constantly track your firm’s finances, you should also keep up with your tax deductions throughout the year. Every time that you make a purchase that is eligible for a tax deduction, document it. Save necessary receipts and transaction records so that you can claim these deductions at tax time.
Law Firm Bookkeeping from Visory
As you can see, handling law firm bookkeeping can be incredibly involved. Fortunately, there is a better way! Visory’s online bookkeeping services are affordable, scalable, and effective.
Interested in learning more about Visory’s bookkeeping services? Complete our free financial health check to see if Visory fits your law firm’s goals and needs.