Accounting for Law Firms: an Essential Guide

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We know you’re experts in all things law, but when it comes to accounting, things can sometimes feel daunting. Whether you´re a solo practitioner or you own your own law firm, this guide is designed to demystify the process and equip you with the knowledge to manage your finances effectively.

Choosing Your Accounting Method: Cash or Accrual

When keeping your books, you’ll need to choose between two methods; cash basis and accrual accounting. 

Cash basis accounting records transactions when cash is exchanged, like a financial snapshot. 

Accrual accounting, on the other hand, logs revenue and expenses as they occur, offering a more comprehensive view of your firm’s finances. 

Many small law firms favor cash basis accounting for its advantage of deferring tax payments until income is received. However, the best choice depends on your firm’s unique needs and circumstances.

Outsourcing with Lazar Accounting Solutions

In the fast-paced world of law, time is money. It’s no surprise then that saving time (and therefore money) is among  the top reasons for businesses to outsource certain tasks such as bookkeeping.

By entrusting your bookkeeping to a firm such as Lazar Accounting Solutions, you can reclaim valuable hours, allowing you to focus on what truly matters – your clients and your business. Our Specialist Bookkeepers from Brooklyn bring a wealth of experience and expertise to the table, ensuring your books are up to IRS standards and off your to-do list.

But what exactly can we help you with?

Streamlining Your Chart of Accounts

The Chart of Accounts, a sorted list of your firm’s finances is vital for accurate reporting. However, it’s crucial to balance detail with simplicity to avoid confusion and errors. A well-organized chart helps track finances, comprehend your firm’s financial position, and guide decisions – so proper setup is a worthwhile investment.

Providing Quality Bookkeeping Consistently

Regular bookkeeping isn’t just an admin task—it’s a strategic necessity. It helps you stay on top of cash flow, ensures the proper handling of client funds, and helps you make informed financial decisions. 

While there is accounting software out there that can automatically record and classify transactions, making this process a breeze, you must remember that even the best software is only as good as the data you put into it. So, make sure you’re entering your transactions accurately and consistently – or outsource to a professional who can do this for you. 

Effectively Managing Receivables

Accounts receivables (A/R) represent the money your clients owe you, essentially your firm’s unpaid sales. It’s no surprise, then, that regularly reviewing and following up on outstanding invoices are key to maintaining healthy cash flow. 

Reminding clients about unpaid invoices and discussing payment terms is an essential part to effectively managing receivables, so don´t hesitate to do this. After all, your services are valuable, and timely payment is fair.

Navigating IOLTAs in Bookkeeping

If you are an attorney who holds escrow funds for clients in Interest on Lawyer Trust Accounts (IOLTAs), keeping very detailed records of the funds is not just best practice, but a legal necessity. It is essential to safeguard your client funds and also your firm´s reputation.

For example, if a lawyer accidentally mixes client funds and a single check bounces, the ramifications are serious. The lawyer in question will have to go in front of an ethics committee and is at risk of losing their license. That´s why it is so crucial that regular checks are made with IOLTAs to ensure compliance and accuracy at all times.

At Lazar Accounting, we´ve helped many lawyers clean up their books to present them to an ethics committee. These audits are brutal, costly, and take up an endless amount of time and energy as well as money. If you´re a lawyer who holds escrow funds for your clients, don´t risk trying to manage such a complex process without professional help. We can give you the right tools and advice to simplify management and give you peace of mind that no mistakes will be made.

Avoiding Common Bookkeeping Pitfalls

Even small bookkeeping errors can lead to significant issues. Common pitfalls include data entry mistakes, misrecording IOLTA account deposits as income, and procrastination. However, with meticulous attention and proper tools, these can be avoided. 

Today’s minor mistake could be tomorrow’s major problem, so accuracy is paramount.

Explore Your Bookkeeping Solutions

Choosing between DIY software like QuickBooks, Xero or Clio, virtual services like Lazar Accounting, or a traditional firm, can offer streamlined operations and instant financial insights. However, the best choice depends on your firm’s needs, resources, and goals! The aim is for a solution that simplifies tasks and boosts efficiency while being cost-effective.

Elevate Your Firm with Lazar Accounting

Lazar Accounting is a specialized outsourced bookkeeping service catering to small businesses, including law firms. We can manage your bookkeeping tasks, generate monthly financial statements, prepare year-end financials for seamless tax filing, and file your tax returns too.

Our deep industry knowledge ensures your law firm bookkeeping is handled accurately and promptly, providing you with peace of mind and more time to focus on your clients.

Contact us today at info@Lazaraccounting.com to discover how outsourcing your law firm bookkeeping can propel your business forward. 

Take Control of Your Firm’s Finances Today

Understanding the intricacies of law firm accounting is the first step toward effective financial management. Whether you handle it yourself or outsource it to professionals like us, the right tools and processes can provide invaluable insights into your firm’s financial health.

** This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Lazar Accounting assumes no liability for actions taken in reliance upon the information contained herein.

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