Law firms have unique bookkeeping challenges. In addition to all the facets of a business like payroll, utilities, supplies, and expenses, they also have to comply with regulatory standards for managing client funds. Legal bookkeeping is a complex field that requires specific processes. Don’t let these common pitfalls embroil your firm in an accounting battle.
1) Separating Business and Personal Transactions
It’s easy for your personal expenses to creep onto your balance sheets. You could easily pay for your car wash with your business credit card. You pick up coffee for the office staff before work and use the corporate card. Before you know it, you’re paying for groceries and the cable bill at home on the firm’s dime. Knowing where you stop and your firm begins sometimes has a fuzzy line. It’s better to be safe than invite an audit. If you’re unsure of whether or not an expense is deductible, it’s better to pay for it with your personal account and reconcile later. Seek the advice of an accountant like JADDE Financial Solutions. Separate your transactions at point of purchase, even if it’s more of an inconvenience. It will save you substantial time and money on bookkeeping.
2) Correctly Billing Client Expenses
Keeping your billable expenses straight can be a bit of a nightmare. You have to train your paralegals to log the hours spent on each client separately. You must keep court briefs and filings billed separately even if you are filing more than one at a time. Improperly allocating client expenses can be a huge challenge for a small firm without the luxury of a billing department. Take out the inconvenience of properly billing clients by using cloud software. You’ll be able to give each employee their own account so they can update billable hours and bill directly. You can update the software on mobile devices so even if you are in court or meeting in a client’s home you can update their account in real time.
3) Properly Managing Trust Accounts
Attorneys are required by law to keep client funds and retainers in a trust account. Those accounts must be constantly reconciled to prove compliance with state regulations. Client ledgers have to match trust ledgers and bank statements. If you’re performing these comparisons and data entries by hand you will likely have inconsistencies. Automate your trust accounting by using legal accounting software platforms with cloud capabilities.
4) Following Up on Unpaid Invoices
Your legal fees are coming from many different places, and not always the client’s wallet. Sometimes attorneys collect their fees from a case settlement or favorable judgment. Pro bono cases collect no fees but still need to be recorded. Some lawyers charge flat fees for services like estate planning or divorce mediation. Criminal defense attorneys have a retainer and charge hourly rates. Personal injury lawyers typically work on contingency and are paid after a case is won. With so many varied forms of income and collection, it’s no wonder that collecting on invoices can be a full time endeavor. Get your account receivables under control with automated invoice notifications. Take billing information up front so deductions occur automatically as services are rendered.
5) Hiring Personnel
There’s nothing more frustrating for a business owner than watching an employee wasting time. While you may be drowning in bookkeeping, you may not have enough work to justify hiring a bookkeeper. If you hire someone, you may end up watching them shop online while they’re on your dime – especially if you don’t have enough work to occupy them all day. Consulting with an outside accounting firm is a bridge to taking some of the burden off of you and your legal team. You may be able to outsource some or all of your bookkeeping work. If you’re not sure where to start, give JADDE Financial Solutions a call. We’ll give you a free consultation and come up with recommendations specific to your firm’s needs.