The hilarious/not-hilarious joke I probably hear most frequently from lawyers is some riff on the “I suck at math! That’s why I went to law school!” theme. Listen… I get it.
Maybe that’s why law firm accounting has your head spinning and why its intricacies have you begging for a full-time controller to take over all things money. But I have a better plan.
Instead, why don’t you set a goal to make 2019 the year your accounting gets easier? Why don’t you take a few simple steps to make sure your law firm’s money situation is more transparent, more clear, and fine-tuned to tell a compelling narrative?
Admittedly, finding—and following—a path toward law firm accounting success is easier said than done. But you know how they say a journey of a thousand miles starts with a single step? That’s our approach toward cleaning up your accounting. Small changes lead to big results over time.
Your Accounting is Costing You
Everything costs money. Staff. Taxes. Technology. Systems. Tools. Books… and definitely crummy accounting practices. If your accounting is out of sync, chances are it will cost you real money in the long run. That may be in the form of paying higher taxes because your expenses aren’t organized or losing money altogether because you haven’t tracked your expenses at all.
Making things worse, you’re probably paying for your poor accounting practices with your time: time spent wondering where your money went, time spent rooting around for months-old receipts, and time spent in a never-ending endeavor that feels like trying to clean with a toddler in the house—when you start to clean and a new mess pops up at every turn.
Once you see what your accounting foibles really cost, you can begin to find ways to mitigate those costs. Law firm accounting software is probably the best way to start getting your firm’s accounting needs managed.
Keep Your Trust Accounts Separate
When your work has you collecting retainers or managing client settlements, it’s absolutely critical that you segregate your trust accounts from all other business accounts. It’s easy to daydream about the simplicity of having just one account, but that utopia cannot be yours. Tracking expenses accurately and reconciling them with the firm’s funds (as opposed to your clients’ funds) is painstaking and fraught. You’re probably even required to keep separate accounts by your state’s regulatory authority.
Create a separate trust account that has strict guidelines for its management.
This includes, at a bare minimum:
- Always knowing the account’s balance;
- Tracking every single deposit and disbursement made through the account in detail;
- Keeping a detailed ledger for each transaction on every client and matter;
- Ensuring each client’s funds can easily be identified and reconciled;
- Reconciling the account monthly; and
- Keep an eye on the institution holding your trust accounts.
Understand Your Firm’s Expenses
Just like it’s important to have a personal budget, it’s important that you continually evaluate your law firm budget and firm’s expenses. These are dynamic and change over time. Whether you’re a solo who works on the go or have a small-firm with an office, understanding your overhead can help you plan for the future.
- The cost of staying up-to-date with technology (devices in particular)
Take advantage of the fresh start that 2019 promises and begin making small changes to your accounting. By the end of Q1, you’ll be surprised by how organized you feel and how much easier it is to manage your firm’s finances.