For most people, the word bookkeeping comes with flashbacks of torrid experiences trying to balance both sides of the table in math class. For a law firm, the concept of bookkeeping is not quite the same. Furthermore, law firm bookkeeping is vital to the survival of the business.
With law firm bookkeeping, attorneys can keep a close eye on how the business is doing. After all, as much as a law firm helps people uphold the law, it is still a business that involves large sums of money going in and out. With the information from law firm bookkeeping, lawyers can make informed decisions that take the firm forward.
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Attorneys and law firm employees need to know that bookkeeping can quickly get complex. It’s just like doing the laundry. If it gets done every day, it’s just a simple task. However, when dirty clothes pile up for a month, doing the laundry can quickly get tiresome and stressful. It’s the same with law firm bookkeeping.
To enjoy the benefits that come with bookkeeping, a law firm needs to do it every day. That’s the only way to keep a close eye on the necessary expenses and transactions that need tracking.
Over the course of this article, we will go into the specifics of what lawyers need to pay attention to when it comes to bookkeeping. And finally, we’ll explore how to save time on law firm bookkeeping.
What is Law Firm Bookkeeping?
Most lawyers tend to mistake bookkeeping for accounting. Although they are closely related, they are not the same. In a nutshell, law firm bookkeeping has to do with tracking cash flow in and out of the firm. Typically, it should involve the following daily tasks:
- Creating and sending out invoices
- Payroll management for the staff
- Posting debits
- Record credit transactions
Why Does a Law Firm Need Bookkeeping?
With attorney salaries on the rise, it’s more important than ever for sola and small firms to pay attention to law firm bookkeeping to make sure that every dollar if income and expenses are accurately tracked. Here’s why:
Helps the business track expenses
Every dollar that ends up a part of business expenses is a dollar law firms do not need to pay tax on. As a result, keeping track of these expenses can be a money saver during tax time.
With law firm bookkeeping, law firms have a record of every business-related expenditure. Furthermore, there’s no rule about how to keep receipts and track expenses. Attorneys can keep a drawer full of receipts or use advanced software. The point is, there must be a record of all business-related expenses.
Posting to Ledgers
Ledgers are very important for the accounting process. Without an accurate record of transactions in the ledger, it may be impossible to balance the books at the end of the quarter or the year:
Law firm bookkeeping involves entering the right numbers in the ledger. Once income comes in, it goes in the ledger. The same thing applies to expenses too.
Like we mentioned earlier, at its core, a law firm is a business. Hence, there are different financial reports that have to be created. Basically, the job of a financial report is to gauge how well the business is doing. This can only be done by using transactions recorded during the bookkeeping process.
How To Save Time on Law Firm Bookkeeping
The daily process of entering numbers and tracking income can be expensive. For a law firm, this is valuable time that could be spent developing client relationships and actually practicing the law.
Hence, many law firms choose to outsource their bookkeeping needs. The advantages of this include:
- Saves time so lawyers can focus on working for their clients
- Makes sure all employees get paid on time
- Ensures compliance with all account and income regulation services
- Law firms get correct financial reports to help with paying tax
- Track essential business metrics including realization, utilization, average fees, etc.
Bad law firm bookkeeping can quickly spiral into a plethora of legal and tax issues. It may mean law firms have to spend valuable time dealing with the Department of Labor or even the IRS. Seemingly small mistakes can quickly snowball into huge financial penalties.
However, when law firms outsource, they can rest in the knowledge their records are kept accurately. And more importantly, the financial records follow all laws and financial codes.