As an attorney, you are not an accounting expert, and that’s okay. You don’t make money doing law firm bookkeeping, and the best use of your skills lies in being a great attorney and serving clients. Unfortunately, this pesky bookkeeping is something that never goes away and can’t be ignored. Bookkeeping provides the information you need to determine the financial health of your firm, and the books have to be closed at the end of the year to complete a tax return.
The good news is the basics of bookkeeping can be made much simpler. Many attorneys in solo or small firms get themselves in a messy situation that could be easily avoided by taking the right steps initially. So, to help simplify this annoying part of entrepreneurial lawyering, I want to share five ways you might be over complicating law firm bookkeeping, and how you can opt to simplify the process.
1. Using the wrong tools (or no tools at all)
It’s amazing, with the tools available today, how many lawyers (and small business owners) rely on some combination of spreadsheets, shoeboxes, and notebooks to keep up with their bookkeeping. And even for those who have stepped up and gotten an accounting system, most are not using it nearly to its full capabilities, or don’t understand how to use the system. An accounting system like Xero takes little effort to understand and can automate a lot of things most attorneys either neglect or spend a lot of time on with data entry. Bookkeeping doesn’t have to be complicated, but you aren’t doing yourself any favors by neglecting the tools available to make it manageable.
2. Letting things pile up
A great book by financial expert Philip Campbell explains how doing bookkeeping is like doing the dishes. If you stay on top of it and do a little every day, it’s very easy and clean. The problem is when you let things pile up. Have you ever waited more than a week to do the dishes? The sink gets more and more full and the excess dishes overflow onto the counters. Then when it comes time to clean it up, it’s an all-day process and you have to use power tools to scrape off the hardened food.
Bookkeeping is the same. When you let it pile up, you come back and it’s a complete mess. Sadly, almost everyone does it this way. Attorneys wait until the end of the month and try to tackle everything, but it takes forever and really doesn’t tell you much about how you are doing in the business. Not to mention, the more you wait, the more likely something falls through the cracks. Do a little bit every day (or make sure someone is) and your law firm bookkeeping will be much simpler.
3. Failure to launch correctly
The reason you struggle to use your accounting system and don’t understand it is because you never started out correctly in the first place. Once you are set up, bookkeeping is pretty easy to keep up with. But if it’s a mess from the start, getting things back on track can be a nightmare, and you’ll never understand it. Like I said before, you are not an accounting expert and don’t need to be for regular bookkeeping. But to get the right start, you’ll need a professional to give some guidance, coaching, and an overview of the system—and this will make things much simpler.
4. Not making law firm bookkeeping a priority
When I was young, my mom would always say things like, “How can you memorize all the stats of a basketball team, but get a C in math?” The reason is because I cared so much more about sports than my school work. I didn’t make math a priority. Sorry, mom. We do well with the things we care most about and the things we prioritize. In all honesty, not many law firms prioritize bookkeeping.
At Kahuna Accounting, we have seen attorneys whose bookkeeping would give my high school math grade a run for its money (and some much worse!). That’s because most don’t see the value in good, solid bookkeeping and only look to get things on track when it becomes a disaster. But there is significant value in it, and that’s the subject of another post. But briefly, good law firm bookkeeping allows:
- Reports to see where your money is going
- Reports to make projections/adjustments
- Reports to prepare for year-end taxes
- Reports to see who still owes you money
- Peace of mind knowing your finances are correct
- A clean audit trail for trust accounts
- Real data to inform decision-making
Bookkeeping for law firms: Best practices
In summary, here’s what to do to keep your books organized:
- Use the right tools
- Don’t let things pile up
- Take time to set up your accounting system the right way
- Make bookkeeping a priority for your law firm
Good bookkeeping can make you a more confident business owner. It takes work to get it done correctly, but it doesn’t have to be impossible. Get the right start and a bit of guidance, and your bookkeeping can be a simple and powerful component of your business.
Want to learn more about law firm bookkeeping? Read up on the five steps to easier legal accounting.
About Micky Deming
Micky Deming is the Director of Marketing at Kahuna Accounting. Kahuna Accounting is one of the top Xero partners in the U.S. and specializes in providing outsourced bookkeeping to solo and small law firms.
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Categorized in: Accounting
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