Law Firm Bookkeeping

Law firms have a lot to deal with during day-to-day operations. Managing clients, gathering documents, attending court cases, or even promoting your law firm can easily overrun your day. So, it is tough to switch over to being your own accountant and do law firm bookkeeping.

Whether it involves data entry, managing trust accounts, or forecasting future cash flow growth, these bookkeeping and record management tasks can take up precious time. You must also have accurate financial records to prevent errors or the mishandling of client funds. Such issues may lead to fines, disciplinary actions, or even disbarment.

Firmly Profits offers bookkeeping and records management services tailored specifically for law firms across the United States, leveraging the founder’s extensive experience and expert financial guidance working within law firms. These services allow law firm owners to focus on growing their practice and serving clients while ensuring their financial management is in capable hands.

Why is Law Firm Accounting and Bookkeeping Important?

Having accurate bank account and bookkeeping records provides your law practice with financial stability. By having complete financial statements, you are able to understand your income, expenses, liabilities, and revenue sources. In addition, you obtain these other benefits:

• Your firm remains compliant for tax purposes. A fractional CFO provides ways to quickly track and manage payroll, sales taxes, trust accounts, and operating expenses.
• With a clear understanding of your firm’s current financial status, you can make informed long-term operational decisions. This allows for timely budgetary choices and the ability to seize growth opportunities.
• Your law business remains compliant with the strict ethical and financial regulations that govern accounting practices. A fractional CFO keeps your financial documents accurate and properly managed to avoid serious issues.

What is the Difference Between Legal Accounting and Bookkeeping?

The terms bookkeeping and legal accounting are often used interchangeably. However, they are two different financial tasks.

Legal accounting involves analyzing gathered financial data and reports. During this analysis, that data becomes interpreted in certain ways depending on the desired goal. A fractional CFO generates reports from this analysis that can be used to make financial decisions.

Bookkeeping involves recording every financial transaction that occurs in the law firm. Whether the money involves income, debits, or expenses, our fractional CFO work involves placing this data into financial software, spreadsheets, ledgers, and statements. The information gathered from bookkeeping tasks will then be used in legal accounting work.

Why Work with Firmly Profits?

Firmly Profits works specifically with law firms and small businesses by providing law firm bookkeeping and other financial services tailored to their operations. We strive to give companies more control and confidence when making important financial decisions.

By having a fractional CFO working with your law firm, we can resolve past legal bookkeeping issues and get your records management back on track. Firmly Profits also helps clients plan out their future growth to reach desired financial revenue goals.

Having worked in a law firm as a CFO, our founder, now dedicates herself to assisting law firms across the country who are in need of bookkeeping and records management services. With Firmly Profits’ accounting services, you gain a better understanding of the financial health of your law firm.

Testimonials

“Obtaining law firm bookkeeping and records management services from Firmly Profits allows you to have accurate and compliant financial records.” — Terry R.

“I cannot say enough about Leah and her team! Coming up with future financial goals and putting a plan into action seemed overwhelming for us, but has been such a great and educational experience. Leah’s knowledge and thought provoking questions truly brought our expectations to the next level. If you’re looking to get a better understanding of your finances and/or exceed your financial goals, we highly recommend Firmly Profits!” — Alisha S.

“I cannot say enough about Leah and her team! Coming up with future financial goals and putting a plan into action seemed overwhelming for us, but has been such a great and educational experience. Leah’s knowledge and thought provoking questions truly brought our expectations to the next level. If you’re looking to get a better understanding of your finances and/or exceed your financial goals, we highly recommend Firmly Profits!” — Pasquale D.

Our Services

At Firmly Profits, we help our legal clients by providing various services tailored to their needs. Our services include:

• Fractional CFO Services: Our CFO fractional services provide tools that assist with performing financial analysis, forecasting, and planning. We help law firms pursue their growth goals.
• Bookkeeping: Firmly Profits offers monthly bookkeeping services. We perform weekly conciliation of expenses, manage accounts payable/receivable, and send out monthly financials.
• Diagnostic Review: In certain cases, you may not know the current conditions of your bookkeeping management. We provide what is called a diagnostic review, which is where we will do a one-time evaluation of your present books and offer a detailed report of our findings. These findings can help you determine the gaps in your records-keeping management to get your bookkeeping back to industry standards.
• Bookkeeping Clean-Up: After performing the one-time diagnostic review, we can clean up your books. This process brings your financial records up to date.
• Trust Accounting: Our trust accounting services focus not only on your operating finances but also on managing client funds for trust accounts and IOLTA accounts. We offer customized trust accounting services, trust account and client ledger setup, ongoing support, and trust accounting training.

What Are the Two Sets of Accounting Records in a Law Firm?

Law firms should have two accounting records: operating accounting records and trust accounting records.

Your operating accounting records list all of your daily expenses and income. Book entries in accounting records would include payroll, vendor payments, and building lease payments.

On the other hand, trust accounting records detail all the clients’ funds, such as advances and retainer fees. It shows transaction history when the client’s funds are transferred over into operating accounts after legal services are rendered.

Law firms can also decide on several different account methods, such as accrual accounting and cost accounting (cash basis accounting). Selecting an accounting method based on your operations can keep your financial statement and balance sheet organized and trackable.

What Key Metrics Are Important for Law Firm Bookkeeping?

Law firm key performance indicators (KPIs) allow you to measure every part of your daily operations. You can use this measurement to create benchmarks and goals. Then, you track the performance of operations to see whether the law firm is reaching designated milestones. When it comes to finances and bookkeeping, here are several key metrics that you can monitor:

• Per month billed revenue
• Per month collected revenue
• Operating account balance
• Outstanding accounts receivable amounts
• Anticipated annual costs
• Law firm debt amounts

Law Firm Accounting and Bookkeeping Software

Accounting and bookkeeping software varies based on functionality and user-friendliness. You want to use software suited to the firm’s size and how many client accounts your lawyers manage.

Some programs are free to use. Other programs may charge a one-time payment or a subscription fee based on the number of users. Law firm accounting and bookkeeping software can be categorized as time-tracking, billing, invoicing, trust accounting, and productivity programs/platforms. Here are some software applications and tools that your firm can utilize:

• Time tracking software allows you to log billable/non-billable time, fee agreements, and time reports.
• Billing and invoicing software helps you to generate client invoices, track accounts receivable, and take online payments.
• Trust accounting software provides an easier way to manage client trust account records, generate reports, and record transactions.
• Productivity programs/platforms are tools that help to automate bookkeeping and records management tasks.

Common practice management software includes QuickBooks and Clio for cloud-based software, while Juris and ProLaw are server-based programs. Keep in mind that there are many more types of software programs out there, and many of their functionalities can overlap.

Consider your budget, your current accounting needs, and the growth of your law firm to decide on the appropriate technology, whether you are looking for IRS tax software or productivity programs.

Legal Accounting Tips from Our Experts

Set a Realistic Budget

To create a budget, you’ll need to think about projected revenue, debts, and miscellaneous expenses. Then, you can decide on the accounting software and management tools suited for tracking cash flow and expenditures.

Obtain Separate Accounts

It’s easy to get into the mindset of grouping all funds into one account. However, it is harder to track client fund transactions and operating transactions. You should have an operating account and a trust account. Then, you can add other types of accounts based on your law firm, such as savings and business credit card accounts.

Create Document Management Practices

Whether using paper documents, going paperless, or using a hybrid recordkeeping method, you should develop best practices for document management. This task provides an easier way to track payments and provide transactional transparency.

Obtain Outside Help When Needed

Legal accounting professionals may range from bookkeepers, CPAs, accountants, and CFOs. Each professional provides unique financial services, such as a CPA who handles tax returns or an accountant who monitors billable hours.

By understanding your law firm’s financial makeup, you can select the appropriate professional based on your accounting needs.

Benefits of Hiring a Law Firm Bookkeeper

While there are many professionals who handle several legal matters, each person focuses their knowledge and experience on a specific practice area. For instance, you would go to an employment lawyer if dealing with wrongful termination claims or a civil rights lawyer for discrimination claims.

The same aspect holds true with outsourcing your bookkeeping and records management. You want a bookkeeper to handle your financial tasks to ensure accuracy so you can remain compliant with accounting regulations. There are many ways in which hiring a bookkeeper whose focus is on law firm accounting solutions can prove beneficial, such as:

• Reducing record errors and noncompliance: A bookkeeper actively looks for problems in book entries and performs reconciliation to remove errors. They are aware of all current state bar accounting compliance rules and strive to keep your financial matters compliant with industry standards.
• Saving time: Having a bookkeeper helps to take this workload off your schedule. You can instead focus on providing comprehensive legal services to your clients.
• Providing cost savings: With a bookkeeper, you won’t have to train the current people who are on staff, such as paralegals, on how to perform accounting work.
• Enhancing collection and audit work efficiency: A bookkeeper can do the entire collections process. This aspect leads to faster workflow and the collection of payments. A bookkeeper can also perform timely audits when necessary.

Set Your Records Straight with Firmly Profits

Hiring a bookkeeper offers you timely and cost-effective work when you are dealing with law firm finances. With our fractional CFO solutions, we can evaluate your present bookkeeping management and bring your records up to date.

In addition, you gain access to the latest accounting technology that can monitor and track transactions and keep client trust fund accounts compliant with your state’s bar association standards.

Are you looking for a bookkeeper to perform a diagnostic review and clean-up your books? Do you need more long-term bookkeeping and records management for your small law firm? Trust the fractional CFO services at Firmly Profits. Reach out to us today at 941-202-4062 or fill out our contact form for a free consultation. Firmly Profits works with law firms across the United States who need reliable bookkeeping services.