There is no question creating a solid bookkeeping system is crucial for maintaining the financial health and organization of your law practice. You know you need good books for your law firm so you can pay your bills, make sure your invoices are paid on time, and have comprehensive monthly financial reports to achieve your goals! We know you may have questions on how to do this. Let us share a few key tips on how to establish an effective Bookkeeping Practice System.
1. Separate Business and Personal Finances. Open a dedicated business bank account to keep your personal and business finances separate. This ensures accurate tracking of business income and expenses and simplifies tax reporting.
2. Choose Accounting Software. Select an accounting software that suits the needs of your law practice. Look for software specifically designed for small businesses or law firms, as they often offer legal-specific features such as trust accounting and time tracking integration. Popular options include QuickBooks Online and Xero. One of the questions to ask is if your accounting software can integrate with your law practice management software as well.
3. Set Up Your Firm’s Chart of Accounts. Create a chart of accounts tailored to your law practice. This includes categories such as:
You can work with your bookkeeper to further customize the chart of accounts based on the unique needs of your practice areas.
4. Record Transactions. Consistently record all financial transactions in your accounting software. This includes entering revenue from client payments, recording expenses, and tracking trust account activity. Be diligent about categorizing transactions accurately to maintain accurate financial records each week to stay on top of your bookkeeping practice system.
5. Reconcile Bank Accounts. Regularly reconcile your bank accounts with your accounting records to ensure accuracy. This involves comparing transactions recorded in your software with the bank statements and addressing any discrepancies.
6. Track Time and Expenses. Whether or not you bill clients based on billable hours or reimbursable expenses or not, you need to utilize time tracking and expense management tools integrated with your case management and accounting software. This streamlines the process of capturing billable time and expenses for accurate invoicing.
7. Generate Financial Reports. Leverage your accounting software to generate financial reports that provide insights into the financial health of your law practice. Key reports to consider include profit and loss statements, balance sheets, trust account summaries, and aged accounts receivable.
8. Monitor Cash Flow. Maintain a close eye on your law practice's cash flow by tracking incoming and outgoing funds. Regularly review cash flow projections to ensure you have sufficient funds to cover expenses and plan for future investments or growth.
9. Stay Compliant with Tax Obligations. Familiarize yourself with tax requirements for law firms in your jurisdiction. Ensure that you are accurately tracking and reporting taxable income, deducting eligible expenses, and fulfilling tax filing and payment obligations.
10. Get the Professional Help You Need. If you are not confident in setting up or managing your law practice bookkeeping system, we can help! Even more importantly, we can help you take back your time by doing this for you and keep you focused on what matters most - practicing law and managing your law firm! When you work with a law firm bookkeeper, who understands what you need, they can provide guidance, help set up your system, and ensure your books work the way you need them to each day.
We encourage you to actively ask the question: What bookkeeping system do you need to run your law practice? If you have one right now, can you regularly review and assess it to ensure it remains effective as your law practice evolves. Remember, by maintaining accurate financial records, you gain better visibility into your firm's financial performance, make informed decisions, ensure compliance with legal and tax obligations, and reach the success you want for your law firm. We know you need money to run your law practice. More importantly, we know you do not need the added stress that comes from doing your own books each day or bookkeeper turnover. After all, you need to be busy practicing law! You need a bookkeeping solution you can trust to get your law practice books right each month. The Practice42 Premier Law Books Team of bookkeepers know just how important staying on track with your books, and your cash flow, is to the success and growth of your firm! Use this link to schedule a free 30 minute Practice42 Strategy Session with us so we can share with you how we can help you reach your goals for success in your law firm!
