My Law firm accounting is a disaster. How can I fix it?
In our previous blog we discussed “How to tell if your Law Firm needs an Accountant”. Let’s hope you’ve committed and said, “ I’m ready to get it fixed, this mess needs to stop” and set your firm up for growth and success.
Now let’s dive into what’s next. We recommend that you outsource your accounting work. There are so many good bookkeepers out there who can help you get where you want to be, looking for those with experience in Law Firms is a must since handling Trust accounts can be tricky, additionally someone that already knows the in and outs of Law Firms can provide you with better insights and best practices specific to your industry. But If you are on a tight budget there is still so much you can accomplish by doing it yourself, this is why we want to share a few steps to get you in the right path.
The first step is getting on the right track, stop what you're doing, you need to start over. The reason so many law firms and small businesses currently have a mess for bookkeeping is that 99% of them never got started correctly in the first place. So now is the time to build a solid foundation, you need to implement a new system.
Attorneys reliant on a practice management system. Some of them have some accounting features to help manage your accounts, but usually that's not enough. In order to have a complete look at your financials you need to implement an accounting software along with the practice management. Find one that can be integrated into your existing software, Quickbook Online is pretty friendly and easy to use.
Now that you have an accounting software you need to build and set up a Chart of Accounts that;’s appropriate for your legal entity and industry. This will allow you to classify transactions in the proper account, to have everything organized and separe as it should. Keep in mind that Law Firms required additional accounts like Client Trust Funds (Liability), Advanced Client Cost (Asset), Reimbursed Client Expense (Income), Non-reimbursable Client Cost (Expense) and so many more. It all varies depending on your specialty.
Good news, the setup is ready, moving forward this is all about consistency and discipline. Now the goal is to regularly reconcile transactions so your financials remain up to date and you have useful information from which to make good business decisions.
Pick a day of the week and sit down on your computer, categorize every transaction and make sure you always know how the money is flowing in and out. At the end of month you will need to reconcile all bank accounts, this way you can guarantee you have not duplicated transactions, you’re not missing any payment and most importantly you will be sure you are in compliance with your Trust Liabilities.
Sounds Easy? If you are committed to making a change you can do this, changes are scary sometimes, but we can assure you and your Firm will be in a better position after you implement those changes and see the results!
Complicated? Get professional help and invest your time working on your firm growth, networking, getting new cases, focusing on a big case, or perhaps just enjoying some time off.
Whatever you decide to do, make this a priority, the longest you wait the messier and difficult it will be to fix.
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