Accounting for Law Firms: A Guide Including Best Practices

Hiring a full-time bookkeeper in this situation could be the right answer for you. As a secondary layer of reconciliation, you’ll also need to make sure that each client’s IOLTA balance on your firm’s books adds up to the total balance of your IOLTA bank account. Next, you’ll withdraw money from the IOLTA account and transfer it to your firm’s account after invoicing a client and receiving their approval to pay the fees.

The types of expenses you can deduct on your tax return will depend on the expenses you incur in the course of doing business. You should also keep any other documentary evidence that supports an item of income, a deduction, or credit shown on your tax return. Everyone from your bookkeeper to your CPA and the IRS needs you to keep documents proving the income, credits, and deductions you put on your tax return.

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You may need only account reconciliation services now but will need to layer on financial and cash flow management services later. If a firm only offers a package that includes services you don’t need, you may pay more than you should at this stage in your business. Online accounting firms use sophisticated data-encryption and communications technology to link clients to their services via an online platform. Source documents and data can be uploaded to cloud storage where they can be accessed from any remote location. If your business does only cash-basis accounting, you’ll need to look elsewhere because Pilot does only accrual-basis accounting. They insist that accrual-basis accounting is better for businesses that want to grow.

Just as with hiring an internal bookkeeper and defining their role, you’ll have to decide which pieces of your financial management make sense to outsource including the bookkeeping function. The average price of outsourcing your https://dodbuzz.com/running-law-firm-bookkeeping/ bookkeeping needs ranges depending on the number of transactions and complexity of services required. A key benefit of Outsourcing is it gives you the ability to customize the services you receive to your bookkeeping needs.

Open the three main accounts

It is imperative for the growth of your law firm to outsource some of the accounting functions to concentrate your energy and time on your core business operations. With expertise in every accounting software and platform, our team of highly skilled professionals offer fast learning curves and swift implementation of solutions. So, with double-entry accounting, every financial transaction gets sorted into a specific category (assets, liabilities, or equity). Once those transactions are sorted, the two sides should match. Double entry accounting is a helpful practice for lawyers to know about, as it provides an extra guard against errors.

Manage business revenue in your checking account, and set aside money you’ll need at a later date (for emergencies, to pay taxes, etc.) in a savings account. Even though interest rates on business accounts are traditionally low, having a cash surplus in a business savings account can improve your likelihood of being approved for a loan. It’s also a good place to store money you’re setting aside for taxes and emergencies. As you’ll find with some of the firms in this review, billing methods can vary beyond a monthly fee, such as an hourly, pay-for-performance fee, or rates based on the number of monthly transactions.

Paralegal & Administrative Support

We’re friendly and knowledgeable and we understand how law offices operate. What are the things that are most likely to influence a client’s perception of you in the little amount of information they’re able to get from a flyer, website, or social media? While the idea that “first impressions matter” may seem a little cliché, they still matter to your clients. As a result, making sure your communication is direct, pleasing, and engaging is critical to your success. You’ll find other ideas in our blog post on finding new clients. No doubt you have plenty of questions about how to set up a new firm and get off to a great start.