You must have taken the Algebra classes in school, where you have learned the word “Bookkeeping.” Bookkeeping is an essential part of law firm accounting. There are several benefits of bookkeeping, like it allows you to analyze your firm’s performance. Also, you can make informed business decisions that allow you to grow.
If you are a law firm owner, you must know the importance of bookkeeping. Here in this post, we will be presenting a lawyer’s guide to law firm accounting services.
What is law firm accounting?
Many people get confused between law firm accounting and bookkeeping. However, the ultimate goal of both the service is the same. But the services have different stages. Bookkeeping needs you to be more precise, careful, highly attentive to the details. On the other side of the coin, law firm accounting is more subjective and it includes:
- Finishing tax returns
- Strategizing for tax liabilities
- Making financial statements and other documentation tools
- Recording expenses and adjusting entries
- Using the books to display business insights like financial trends, keep performance indicators, tax planning, the impact of financial decisions, forecasting, and many more to name.
How to keep a chart of accounts in law firm accounting?
First, you create a firm accounting process to avoid mishappening. However, you do not need to worry if you don’t know how to start. You can begin by making a chart of accounts. It is the framework for organizing data such as:
- Expenses
- Revenues
- Trust Accounts
- Client Expenses
Usually, the Chart of Accounts includes five primary things: liabilities, assets, revenue, expenses, and owner’s equity. There could be lots of subcategories that depends on your business.
Bookkeeping mistakes and how to avoid them
There can be grave consequences if there is a mistake in your firm accounting books. So, here are some of the major mistakes that businesses make.
Losing track of business costs while doing law firm accounting
One of the significant common mistake lawyers make is a lost track of business expenses. It is better to know and record the business expenses daily, so there is no chance to lose a receipt or invoice.
Combining business and personal expenses
If you want to operate a legit business, then you should not combine personal and business expenses. It becomes challenging to claim your business expenses when you intermingle the two different expenses. It is advisable to maintain separate accounts for your business and personal finance to ensure that it does not intermingle.
Procrastinating
We recommend you schedule a time track your finances at least once a week. Even a small amount of time a week can help you avoid long hours in the end.
Ignoring Professional Help
For law firm accounting, it is essential to have dedication. You have to pay attention to everything else in your enterprise. It isn’t easy to take all the weight on your shoulder, so we recommend you take help from professionals or any accounting outsourcing service.
Data Entry Mistakes
Many attorneys try to balance their checkbooks to find they are a quarter off somewhere. One number mistake on the books of your law firm can cause unrest. Thus, it is vital to take some time and double-check the entries which you have done.
Things to Keep in Mind Before Hiring Accounting Outsourcing Services for law firm accounting
If you are about to hire outsourced accounting services for law firm accounting, here are a couple of things that you need to be aware of.
- Will, the service providers, use your services, or will you use their services?
- How do you prevent fraud?
- Are you sure that your accounting outsourcing service providers will manage the IOLTA accounting?
- What kind of task will they do, and how frequently?
How to find the perfect outsourced accounting services for your firm
Now, you are ready to hire accounting outsourcing services for your law firm accounting. Here is how you can choose the right one.
Word of mouth
You can ask your friends and family to suggest.
Virtual law firm accounting services
You can also hire outsourced accounting services via virtual law firm accounting services.
Lawyers insider groups
You can check Lawyers insider groups where you can find attorneys like you who have hired their bookkeepers.
Bottom Line
Before making any decision, ensure that your law firm accounting service provider is well-versed in legal accounting and bookkeeping. If they have, then get in touch with them for Law Firm Accounting.
