In the legal world, compliance is key.
Then why do so many attorneys struggle with their business accounting?
We’ve seen familiar looks of terror on many attorneys’ faces when we’ve mentioned accounting in front of them. It’s no wonder: failure of a law firm to remain compliant could result in stiff penalties, even disbarment, and can be quite challenging for attorneys who are not accountants.
The legal accounting team at Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. understands the unique needs of a law practice. We provide everything from QuickBooks Online setup and maintenance to training and support for your staff, CFO Services, and small business consulting.
Our goal is to empower lawyers to spend less time on their books and more time with their clients. Customize your accounting system to:
– See your back office run as smoothly as your front office. We perform regular reviews of finances, policies, procedures, and CPA-readiness.
– Take control of poorly organized finances and get caught up on paperwork. We establish a meaningful reporting system that meets your specific needs on a weekly, monthly, quarterly, and annual reporting basis.
– Have financials accessible 24/7 from anywhere and on any device. We manage everything including payroll, billing, payables, reporting, and even tax payments, all with real-time data retrieval from the cloud.
– Setup automations to work smarter, not harder. We will establish automatically generating reports, on-time bill payments, receivables, data imports and more.
– Plan for the future with our many useful integrations that provide valuable insights for budgeting and cash flow forecasting.
– Get the expertise of a CFO at the fraction of the cost of a full-time staff executive. Our certified QuickBooks Pro Advisor bookkeepers and accountants provide guidance about sales, mergers, acquisitions, marketing, and more.
If a law firm effectively manages its accounting, it can identify it’s most successful practice areas and allocate resources appropriately to improve the firm’s success in those areas.
Plus, if your law office’s accounting is not where it should be, then you are opening yourself up to leakage; money that should end up in your pockets could very well line the pockets of your client or vendors instead.
Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. compiled a list of 5 areas where improper or sloppy accounting could cause problems for a law firm:
1) Trust Fund Accounting. Law firms commonly use retainers to secure cash flow from clients. Even though the law firm may have the client’s money up front, the money doesn’t actually belong to the firm until they have earned it. As law firms track client ledgers individually, they still must keep all trust funds pooled in one bank trust account and obviously, complications may arise. They must ensure that clients’ funds remain separate and are not used to pay for the law firm’s expenses. The easiest way to avoid issues related to client trust fund accounting is to use accounting software that can accommodate legal-specific needs, like QuickBooks Online.
2) Properly Accounting Case Costs. When practicing law, cases and matters incur their own expenses. The costs are eventually billed to the client, but in the meantime they must be properly accounted for. It sounds simple until you consider that all costs cannot be treated equally. Depending on the type of case, an attorney may treat costs as ‘Advance Client Costs” or “Reimbursable Client Costs.” The first is recorded as an asset on the balance sheet while the latter is on the profit and loss statement. Mishandling case costs, even inadvertently, can result in IRS compliance issues. Plus, if the costs aren’t tracked on the correct case or matter, then they may end up incorrectly billed to the client and ultimately result in a loss to the firm.
3) Income Vs. Revenue. Revenue that covers a firm’s incurred costs must be separated from their actual income. Failure to do so will result in inaccurate books, compliance issues, and difficulty recognizing which cases have become more valuable to the firm.
4) Data Entry Errors. Data must match in both the billing and accounting systems of a law firm. Unfortunately, they often do not when firms use two separate systems for their accounting and billing. The simple fact that all financial data must be accurately entered twice across two systems is setting a firm up for failure to accurately sync the systems. Any discrepancies may create bookkeeping issues, billing complications and ethics violations. This problem can easily be remedied by implementing a comprehensive accounting system, like QuickBooks, that includes both billing and accounting in a single data set.
5) Income Tracking. As with any business, making decisions without accurate financial data can lead to missteps that result in lost revenue. By tracking income by case type, a law firm creates new business opportunities by analyzing valuable data about different case types, enabling the firm to spend resources (marketing costs, for instance) more efficiently. Simply tracking income with an understanding of which practice area it came from can give a firm a big advantage.