4 Reasons Why Legal Accounting is Important
Accounting is important for any type of business but is vital in a law firm. It is critical to the success of your firm. As an owner you are obligated to have a clear and accurate legal accounting system for firm, your clients, and the state bar. Every firm is required to stay compliant to ethics regulations regardless of what jurisdiction the firm is under. Here are four reasons why your legal accounting is important.
1. Trust account management
This aspect of legal accounting is especially important and can take time in your firm. There are many rules and regulations around trust accounting and failing to comply with them can lead to serious problems. It is important to have reliable software to manage your client’s funds in the trust. There are many types of software available to manage trust accounts that will allow you to provide safeguards to prevent the overdraw of accounts. There should be a periodic reconciliation between each client’s ledger, the trust account software, and the bank statement to ensure accuracy.
Invoicing can be tedious and time consuming. For a smaller firm, manual invoicing or using your accounting software can be utilized. Some practice areas and sizes of law firms may require the use of software to effectively manage your invoicing. This is important for invoices to be accurate and detailed for time and expenses on each client, but it is also important for your client to know exactly what they are paying for.
3. Tracking expenses
It is important to have detailed knowledge of where your money is being spent. These expenses can be related to overhead costs to run your firm or they can be client specific expenses. Depending on the type of client specific expenses, you will need to ensure tracking if they will be charged back to the client or absorbed into the overhead of running the firm. The tracking of client expenses can affect your bottom line if not managed correctly.
4. Billable Time
Billable time needs to be tracked accurately and timely. This may not fall directly into the accounting realm but if this is not tracked effectively it can affect your invoicing and your revenue. As a law firm owner, you owe it to your clients to track your time correctly to avoid overbilling and you owe it to yourself to avoid underbilling. By enacting a strict time tracking procedure will help maximize the time you do have and will help to accurately account for your time with each client.
There are many aspects to legal accounting, but these are four reasons why it is important. To learn more about legal accounting check out more here. You can also check out more about invoicing and the challenges here.
Next week we will cover common legal accounting mistakes.