If you’re the new owner of a budding law firm, your first instinct may be to focus on developing a slate of clientele as a first priority. However, in time, you will realize that getting your books in order in the beginning will prevent a lot of heartbreak and extra work down the line!
Bookkeeping for law firms can be daunting! Law firms are held to high standards and stringent laws when it comes to bookkeeping and finances. To avoid unnecessary risks to your firm and your credentials, follow these tips for keeping your books accurate and free of errors from the very beginning!
1. Separate Business and Personal Finances
Law firms operate under strict ethics rules and bookkeeping laws that dictate how business funds, client funds, settlements monies, and personal finances are to be treated. As a new law firm, you should do your research and gain a clear understanding of the laws that pertain to your business practices, or hire an experienced professional who can help guide you through your obligations. Any violations of these rules can result in your disbarment, so it’s crucial that you separate your business funds and personal funds to avoid risking the credibility of the firm that you’ve spent countless hours and resources working to build.
2. Decide on Cash vs. Accrual Accounting
It’s important to decide which accounting method your new firm will abide by, preferably before you file your first tax returns. With the cash accounting method, revenue is accounted for when you’re paid, and expenses are likewise accounted for when they’re paid. With the accrual method, your revenue is accounted for when it’s earned as with the cash method. However, expenses are accounted for when they’re incurred, whether they’re paid immediately or not.
The accrual method provides a better understanding of costs to revenues in any given month or year, but doesn’t necessarily match your revenue with overall cash flow. On the other hand, because your revenue and cash flow are accounted for concurrently using cash accounting, your income tax obligations are easier to anticipate using the cash method than the accrual method.
3. Hire a Bookkeeper
Hiring an experienced bookkeeper like Legal Ease Bookkeeping can take your firm beyond mere compliance and help you truly excel when it comes to your bookkeeping. A professional bookkeeper – especially one that specializes in providing legal bookkeeping services to law firms like yours – can help you better understand your numbers: what they mean for your financial health, and how they can be fine-tuned to ensure your new law firm stands the test of time.
Bookkeeping services for law firms can be a difficult expense to justify as a new law firm just starting out. However, considering how cumbersome bookkeeping for lawyers can be, keeping up with intricate bookkeeping legalese in addition to the needs of your clients can be far more detrimental to your firm’s success than fees incurred by hiring a bookkeeper.
Just started a firm and need a bookkeeper to help you establish key systems?
Partnering with a bookkeeper gives you the freedom and flexibility to focus on your clients while your bookkeeper can focus on setting the stage for your new firm’s long-term growth and success. Following these three easy tips will help you steer clear of any compliance issues, and keep your law firm on the right track for many more years to come!
