Small-scale law firms usually tend to have a hard time when it comes to bookkeeping. One person or few individuals commonly handle this crucial procedure because of a lack of budget, or they are unaware of the problems that may arise when something happens. Although, we cannot blame them for they have a lot of things going on their plate.
Law Firm Bookkeeping is no easy task; even experienced lawyers can get daunted. It involves the correct records of all the in and out of money. It should be precise and accurate, for you may undoubtedly deal with charges; this is the importance of knowing the basics of law firm bookkeeping.
Principles of Bookkeeping
Income and Expenses
It is essential to track income and expenses so you will be able to monitor the flow of your finances. It will also help you determine if you are effectively charging your clients based on the proper hours and other billable costs. The number one thing we want to avoid here is the loss of income.
Do not be intimidated when you create ledgers. It doesn’t really have a specific format you should follow but keep it organized. If you are having a hard time doing it on the traditional ledger, you can also use other software to help you. There’s specific software that is commonly used for law firm bookkeeping, and you can search it on the net.
Here, you will just need to create a summary of the law firm’s income and expenses, and it can be daily, weekly, or monthly.
In doing your financial reports, you just need to summarize the data on your ledger and create graphs and charts such as your business and finances’ status. It is essential to see what you have profit from your finances. What you will commonly see in the report are Cash Flow Analysis, Balance Sheet, and Profit and Loss Forecast.
Avoid Common Law Firm Bookkeeping Mistakes
Merging Business and Personal Expenses
Ensure separate accounts for your business and personal expenses. You will not be able to successfully monitor the financial status of your law firm merging these two. Your transaction for your business should only be for your business account.
Disregarding Professional Help
As mentioned above, bookkeeping is no easy task. You must secure an appropriate individual to bookkeep your finances. You want to avoid any mishaps in the future. The law firm’s financial credibility is lying on the bookkeeper or the law firm accountant which is aware of trust accounting and other principles.
Failure to Monitor Business Expenses
This scenario is listed as a common mistake of various lawyers. You should record it quickly so you wouldn’t lose any invoice or receipt, or you can also send a capture to your bookkeeper or accountant, so it is monitored right away.
Most of the time, finances are not tracked on time; that is why there is a frequent delay when paying taxes. It is recommended to allot time weekly in monitoring your finances. So, you will be able to double-check every amount. You do not want to be subjected to any penalties, charges, or possible disbarring.
The points mentioned above are what most needed by small firms or soaring firms. Reading these pointers may have helped you realize that law firm bookkeeping sure is not the area you should neglect.
There are various individuals or businesses themselves that can help you with this tedious and challenging task. So, that you rest assured what your business and, most importantly, financial status is. It is also another key to the law firm’s continuous prosperity.