Attorneys practice law, that’s what they do. It stands to reason that their success rate in courtrooms and meeting rooms is the biggest difference in keeping their practice alive and successful.
While an attorney’s performance for their clients is certainly a giant part of their success, there is another area that is far more likely to become the downfall of an otherwise successful firm. That is a firm’s legal accounting. The management of a law firm’s legal accounting is extremely important. Minor missteps can result in ethics issues, and then the ethics issues can turn into disbarment.
In addition to remaining compliant with your jurisdiction’s legal accounting rules and regulations, a firm’s legal accounting can have a very direct impact on the firm’s bottom line. One of the most common problems at law firms across the country is leakage. Firm’s fall victim to leakage when their legal accounting isn’t up to snuff. This means that income that should be in the firm’s bank account ends up in the pockets of clients or other service providers. While it may help build client and vendor relationships, it will not contribute the financial and overall success of a firm.
Finally, successful management of a firm’s legal accounting can create a wealth of business intelligence data for the firm. All of this information that can be gathered from the firm’s legal accounting system can provide great insight into which practice areas and activities generate the best return for a firm.
The Pitfalls Of Legal Accounting
It’s clear that when a firm is mindful of their legal accounting and give it the attention it requires- it can be a major win for the practice. The problem still lies in the fact that attorneys are not accountants, so it is nearly impossible to expect them to understand all of the accounting intricacies involved. Many accountants also lack the legal-specific accounting knowledge to truly assist a firm as well.
Here is a list featuring the major legal accounting pitfalls many firms face. Navigating these areas successfully can be the difference between a firm being successful and a firm going under.
- Complications and compliance issues associated with trust fund accounting.
- Differentiating between Advanced Client Costs and Reimbursable Clients (A.K.A. Case Cost Accounting).
- Understanding the difference between income and revenue.
- Neglecting to integrate your legal billing and accounting systems.
- Failing to track your firm’s income by case type.
Learn more about these pitfalls and how a comprehensive practice management and accounting system can help you avoid them, by using CosmoLex free during your no-obligation trial.