The Biggest Problem With Law Practice Bookkeeping, And How You Can Fix It
August 15, 2016
The biggest problem with bookkeeping is that most small law firms and solo practitioners would rather tackle the million other tasks that they need to finish than take the time to manage their books themselves. Many small firm practitioners believe that they don’t have to worry about financial details as long as they have money in their bank account. It is also common for attorneys to think that they should be increasing their billable hours instead of performing administrative tasks.
One issue with not taking the time to manage your bookkeeping and waiting or procrastinating until tax time to complete is that you lose the benefit of having access to good financial records. Many small law practices fail because they are unaware of their financial standing, which in turn reduces their capacity to make good business decisions. Without accurate and up-to-date records, you limit your ability to access reliable information that can tell you if you should be putting more money into marketing or if you are getting billed correctly for recent expert testimony.
Ignoring your books also restricts your practice’s ability to grow. If you cannot prepare financial statements for your bank, you will be unable to get the financial help that you need. You will also find it difficult to easily and quickly access financial data, such as assets, income, expenses, and liabilities, all of which can help small law practices to grow and operate more efficiently.
In addition, lacking access to good financial records can cost you money, as you will likely be required to pay unnecessary fees that have accrued due to a variety reasons. Maybe you made a late payment or had to pay for an item monthly instead of paying it at a lower annual rate. Since you were unaware of how you stood financially, you might lack the revenue to make a sizeable annual payment. It is also likely that you will face more issues during tax time, as a lack of access to accurate records can result in underpayment or overpayment of your taxes.
Now that you understand why a lack of bookkeeping management can be problem, how can you fix it? Well, there are a few options that you can pursue.
- You can do the bookkeeping yourself. Except that may not be a good idea. You weren’t bookkeeping to begin with, and it’s unlikely that you will change your ways.
- You can hire a full-time employee to do your bookkeeping for you. That idea could also use some work because you don’t really need a full-time employee to do your bookkeeping because it doesn’t take 40 hours a week to manage your bookkeeping.
- You can have someone at your law practice do it for you. This probably isn’t a good idea, either. If they don’t know what they are doing, they can make the situation worse.
- You can outsource your bookkeeping to someone who does data entry for you. While this is an okay idea, the person you outsource to won’t be able to give you much in the way of useful information. They may provide you with the data but they won’t explain what the change in numbers means and benchmark you with other attorneys so you know what areas you can improve. Your taxes may be easy to file, but you won’t receive all of the benefits that a great bookkeeper can provide.
- You can outsource your bookkeeping to a great bookkeeper who will provide information on where you stand, highlight problematic areas, and give you advice on how you can continue to grow your practice. This is the best idea, as it will allow you to manage your law practice more effectively. A great bookkeeper can help you see where your cash flow is going, help you financially prepare for large purchases, help you setup a budget, benchmark you against other law offices and more. These tools will make it so you can easily see what areas need improvement and figure out what the next steps are for growing your law practice.
If you are ready to fix this problem and keep those books from hanging over your head, click here to schedule your free 30-minute consultation. Legal Ease Bookkeeping, LLC can help you to see all the benefits of having accurate and up-to-date financial records.