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Accounting and Bookkeeping for Law Firm: How to Master the Language of Legal Business

updated
October 6, 2022
27 min
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As a lawyer, you have tremendous duties and responsibilities and are scrutinized on many levels. That's why legal accounting and bookkeeping are so essential. As you know, the only way to avoid running afoul of laws and regulations is to have strong legal accounting and bookkeeping practices in place.

By learning the principles and best practices of legal accounting and bookkeeping and mastering their languages, you can effectively strengthen and protect your firm's finances from preventable problems.

In this law firm accounting guide, we take you through law firm accounting and financial management basics to cement the knowledge you already have and present valuable new information. We cover all of the key aspects involved in both practices and explain strategies to help you apply this knowledge to your firm's benefit.

Law Firm Accounting: The Main Definitions

Trust Account Checking Account Savings Account
Trust accounts are used to store clients' money The checking account can also be viewed as the general operating account Savings accounts are used for saving money or storing non-client funds
Accounts may include money from settlements or for retainers and fees Its primary use is for expenses Most savings accounts are interest-bearing but have low interest rates
These funds are not the property of the law firm These accounts should not be used for long-term savings Different banks offer a variety of savings account options with different interest rates
These funds should not be used for law firm operating expenses Checking accounts should be used for day-to-day and general expenditures Most require a minimum balance to avoid monthly maintenance fees
Client funds must be deposited into a client trust account Some checking accounts are interest-bearing, but not all Money in this account offers a safety net for unexpected expenditures and emergencies
You cannot deposit law firm money in a client's trust account Monthly maintenance fees may apply Savings accounts provide a great way to save for quarterly tax payments
Your firm may not earn interest on the account Overdraft fees and ATM fees may apply Savings account proceeds are a great addition to retirement funds
You cannot keep earned fees in a client's trust account There are usually no limits on transfers Experts advise firms to put away 10% of profits at first and less once the account has grown
You cannot withdraw disputed money for payment of firm fees Various types of checking accounts exist, depending on the bank Funds are protected by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000
You must give a full accounting of trust monies and assets when a client requests Checking accounts keep your personal and business funds separate Business savings accounts are available with perks and services
Firms must reconcile trust accounts regularly Checking accounts are an effective method of keeping track of financial records and transactions
Business checking should always be used over personal checking accounts
IOLTA Double-Entry Account Three-Way Reconciliation
IOLTA accounts include pooled client funds from settlements, retainers, and other sources of client funding Each transaction under double-entry accounting generates two entries for transactions Most bar associations require law firms to comply with regular three-way reconciliation
These accounts require meticulous accounting to keep clients' funds separate Transactions are recorded as both debits and credits Reconciliation protects both clients and law firms from financial problems and confusion
Law firms cannot borrow or use these funds Debits and credits must always equal out on every account Three-way reconciliation requires bank account balances and book balances to match
Law firms may remove funds from IOLTA accounts when they have earned them Accounting software typically enters cash as debit and credit automatically It also requires the bank account and book balances to match client ownership details
Interest can be earned on these accounts Double-entry accounting helps catch and prevent accounting errors pertaining to assets and liabilities Law firms are responsible for balances that do not match up, regardless of fault
Earned interest does not belong to the law firm Some double-entry transactions may require the use of more than two accounts Three-way reconciliation is often performed every 30 or 60 days, depending on the state
Interest is transferred from the account and used for social justice programs, such as legal aid services Powerful accounting software is available to help law firms fulfill this obligation

The Key Difference Between Law Firm Accounting and Bookkeeping

accounting vs bookkeeping for law firms

Both accounting and bookkeeping practices are essential for a law firm's success, and they share some similarities. Although they are different processes, they complement one another. Generally speaking, law firm bookkeeping is only concerned with the recording and organization of a law firm's financial data and transactions. Accounting, on the other hand, deals with the interpretation and presentation of this financial information to relevant parties.

Bookkeeping is the horse and always comes before accounting. It is an administrative task that must be carried out for any new financial transactions. Each transaction is taken into account and detailed by the legal bookkeeper.
Accounting is the cart and always comes after bookkeeping tasks have been completed. Without the finished work of a legal bookkeeper, a legal accountant won't have any figures or data to interpret or work with.

With financial data in hand, legal accountants present big-picture information and give both overall and specific reports of a firm's financial health. These data are valuable for a law firm's future sustainability and profitability.

Bookkeepers should be up to speed on the rules and regulations of the jurisdictions they work in and should have experience with accounting software. Legal accountants as well need to be intimately familiar with the relevant rules and laws and be comfortable using different types of software. Accountants should also be able to provide a law firm with professional counsel that will help the law firm grow financially.

This Is How a Proper Accounting for Law Firm Can Benefit Your Business

The most successful law firms tend to have every aspect of their firm's operations organized, including the firm's finances and legal matters. Their setups allow easy access to vital information pertaining to clients, cases, and finances, which means they likely have at least one experienced accounting professional working with them.

Although the basic principles behind accountancy and bookkeeping are easy to grasp, the execution of both requires time. That's why law firms employ dedicated professionals and software to handle financial matters for their businesses. Doing so provides them with the following benefits:

It Keeps Your Law Firm Compliant

Law firms are under a particular duty to maintain compliance at many levels, most notably with regard to client funds and other financial matters. They also face tax-compliance issues at the state and federal levels, as well as municipal taxes.

Legislative bodies, the American Bar Association, and state bar associations have created protective rules that stipulate how lawyers are to carry out their duties to their clients.

Violating these rules can lead to serious liability for lawyers and law firms, even if a violation is due to a simple mistake. For example, the commingling of client funds with law firm funds is perhaps the biggest error in the business and is punished harshly, regardless of whether there was an intention to do so or not.

It Helps You Grow

Growth is essential for any law firm that wants to maintain profitability. And while marketing is key to expansion, a high-quality, properly executed accounting for law firm system may be even more important to your firm's continued existence.

Strong accounting and bookkeeping basics will do many things to fortify the overall health of your law firm, such as reducing costly errors. The accounting process catches mistakes in their infancy or even before they occur. You can effectively control your exposure to liability with a quality accounting practice in play and avoid time-consuming damage-control measures when every aspect of your firm's operations is monitored and analyzed for errors.

A strong accounting practice will also allow you to plan strategically for the future. Clearly presented financial data will help you identify areas in your business that may need tweaking for optimal functionality. This data will also aid in determining the financial feasibility of planned projects or actions, such as taking on a particular client, hiring more staff, or acquiring real estate and other assets.

To learn more about financial management and law firm growth, watch our podcast, where Sasha Berson and Ryan Kimler discuss how to increase a law firm's revenue by optimizing numbers.

You Always Know Where Your Money Is

Successful law firms know everything about their money, from where it came from to where it will go. If you don't have a strong accounting practice handling your affairs, you might be surprised at all of the expenses you incur and pay each month. You may also be surprised by how much revenue comes in.

Poor accounting means that you will find it hard to make a profit or even continue running your business. Without knowing where every dollar comes from and where it goes, it is impossible to make realistic plans for the future. Expenses you may not be aware of will impact the viability of your goals.

Law firm accounting gives you comprehensive information about your money. It also warns you of potential problems, such as commingling, future insolvency, and tax filing issues.

It Protects Your Reputation

It takes years to build a strong attorney reputation and one second to destroy it. Law firms are held to a high standard and suffer greatly when errors occur, even when the errors are unintentional and understandable. Law firm accounting helps you keep your firm's name reputable and clean.

How a Lawyer Can Master Law Firm Accounting and Financial Management

Even with your busy schedule of cases and clients, you can master law firm accounting and financial management. Although daunting for some, the principles behind law firm accounting and financial management are based on simple financial management concepts that are not as difficult to master as you might think.

As you learn more about the process, you will likely find that you already have a good understanding of law firm accounting and financial management. But no matter how much knowledge you hold, this guide will help you attain a high level of fluency in both practices.

Sort Out Your Budget

Your budget will act as one of the primary guiding forces of your law firm. Hence, it is important to work out a comprehensive budget that captures every aspect of your business. Mastery of accounting and financial management practices will help immensely. With a well-thought-out budget, you will be prepared to:

  • Make and execute realistic goals
  • Monitor cash flow and expenditures
  • Account for discrepancies

The right budget management software is essential for law firms. Clio Manage and other programs help firms organize all of their financial activities, from expense and revenue tracking to managing billables.

Properly created law firm budgets come in all shapes and sizes. But they all allow their respective firms to set goals and keep the firm from running into financial or legal trouble.

Figure Out What Types of Bank Accounts You Need 

All law firms must have bank accounts to handle the flow of revenue, payments, and other funds. Generally speaking, most lawyers use three types of accounts:

  • IOLTA accounts
  • Checking accounts
  • Savings accounts
Many law firms have all three accounts or more, depending on their needs. Proper law firm accounting and financial management can help you decide which ones are right for you, along with which banking institution is right for your firm.

When deciding which accounts you should open for your law firm, you'll want to get answers to a few key questions. You should pose these questions to the institution handling your business bank accounts:

  • What are the fees involved, and how can they be avoided?
  • Are business savings accounts available?
  • Are business credit cards and lines of credit available?
  • Are IOLTA and other types of trust accounts available?
  • Can I designate separate users to handle certain banking matters?
  • What type of security and fraud protection do you offer?

Comparing different banks' answers to these questions will help you decide which institution and account are right for you. Shop around and ask lots of questions.

Keep Your Accounts Separate

There is really no room for error when it comes to commingling client funds with law firm funds. It pays to have an effective system in place that will prevent this from ever occurring. By keeping your money separate at all times from your clients' and strictly following trust administration rules and guidelines, you'll sidestep a whole host of problems down the line.

Specify Your Accounting Methods

Specifying your accounting methods and needs is another important step on the path to mastery of legal accounting and financial management. Law firms use either accrual or cash accounting. The appropriateness of one method over the other highly depends on the characteristics of your firm.

Regardless of the method you use, it is essential to have your chosen method of accounting in place before filing your first business tax returns.

Cash Accounting

Cash accounting is the simpler of the two. It provides for the recording of cash as revenue when your firm receives it. This means once a payment hits your bank account, it is now taxable. The same holds true for expenses. They aren't counted as such until money leaves your account. This method does not recognize various types of payment accounts, such as accounts receivable and accounts payable.

One of the principal benefits of using the cash accounting method is found in its simplicity. This type of accountancy gives you a clear look at your current financial situation. But it does not take into account cash that will be coming in later. However, this could work to your benefit. With cash accounting, you don't have to pay taxes on earned money until it has been deposited into your account. This can help you defer tax liability until you are in an optimal position to address it.

Accrual Accounting

With the accrual method, on the other hand, you enter an expense or revenue the moment it is incurred or earned. For example, when you invoice a client for services, the money they owe you is entered in the books as revenue. The same holds true for expenses and liabilities. Once your firm receives a bill, the expense goes on the books.

With this method, tax liability attaches before funds are even received. And although accrual accounting gives you a good idea of your future income and expenses, it does not provide as clear a picture of your cash flow situation as does cash accounting. This is a more appropriate accounting method for large firms with high client turnover.

It’s Better to Hire a Professional

Lawyers are incredibly competent professionals. However, it is never a good idea to take on tasks above and beyond your work duties, especially accounting and financial management tasks. It is always better to let a competent, experienced professional or company handle things. As with the law, too much can go wrong if you don't have the right professional in charge.

How to Hire Staff for Law Firm Accounting Jobs

Skills required for bookeepers

Hiring staff for dedicated accounting jobs is smart business. However, going about hiring the right professional can be a challenge if you don't know what to look for. Before calling people in for interviews, you'll need to know exactly what positions to hire for and the experience each candidate needs to qualify for that position.

Bookkeeper candidates, for example, should have ample experience in all of the standard administrative duties the position requires, such as:

  • Entering financial activity into the books
  • Confirming the accuracy of the books through cross-referencing
  • Creating relevant financial statements and reports
  • Managing payroll

Although a bookkeeper's duties will be similar across most business contexts, it is best to hire a bookkeeper who has experience working with law firms. The same goes for legal accountants. You want a professional with ample experience handling the accounting ins and outs for law firms — one who knows jurisdictional rules and can provide valuable guidance to your firm.

Questions to Ask When Interviewing a Bookkeeper

Finding the right staff member requires asking the right interview questions. You need to know specific things about your potential hire to truly know if they are up to the task of handling your bookkeeping needs.

Questions to ask potential bookkeeper hires include:

  • Do you know the relevant jurisdictional rules and regulations?
  • What experience do you have with accounting software?
  • What is your experience with preparing financial reports?

You will also want to inquire into their relevant education and training related to bookkeeping and financial account management.

Questions to Ask When Interviewing a Legal Accountant

Some key questions to ask potential legal accountants include:

  • Are you up to speed on the rules of our firm's jurisdiction?
  • Do you have experience with similar law firms?
  • What benefits can you provide to a firm like mine?
  • Are there any special services or experience you can bring to the table?
  • Will you be able to provide recommendations and guidance?
  • What accounting software do you have experience with?

You should also inquire into each candidate's education and training related to legal accounting.

Study Law Firm Accounting Reports Regularly

Top-of-the-line law firm accounting practices generate regular reports of activities. By studying these reports, you will gain valuable insight into your firm's operations and be in a position to make effective decisions for your firm. It's easier to spot opportunities and potential problems and take effective, appropriate action if you regularly read your law firm accounting reports.

Best Accounting Software for Law Firms

Accounting software for law firms is vital for busy and growing offices. As you would imagine, there are numerous options on the market, each with its particular and sometimes peculiar characteristics and features. Below, you'll find a short breakdown of some of the more popular options for accounting software for law firms.

FreshBooks

FreshBooks

Tens of millions of people have relied on FreshBooks, making it a solid choice for your firm. This comprehensive accounting tool can help you manage every aspect of your firm's business, including expenses and revenues, client information, and all of your communications.

Some of the tasks that FreshBooks will help you with include:

  • Tracking and monitoring time and resources spent on each client
  • Managing invoices and receipts
  • Accepting all main forms of payment in multiple currencies
  • Creating financial reports, such as expense and profit-loss reports

FreshBooks offers four levels of monthly pricing:

  • Lite ($4.50): Services for up to 5 billable clients, invoice services, and business tracking
  • Plus ($7.50): Services for up to 50 billable clients and double-entry accounting
  • Premium ($15.00): Unlimited billable clients and other included services
  • Select: Support for specific needs with custom pricing models

Pros:

  • High-level features
  • High-performing workflow automation
  • Formidable security and encryption features
  • User-friendly and intuitive interface

Cons:

  • Templates used for invoices should allow more customization
  • It may be difficult to incorporate retainers

Zoho Books

Zoho Books

Zoho Books is one of the more affordable law firm accounting software options. But don't let that fool you into thinking it is incomplete or lacks essential features. Zoho Books gives users access to all of the key features offered by more expensive programs, including:

  • Quote and invoice generation
  • Expense and receipt management
  • Time tracking
  • Payment monitoring
  • Automated recurring financial transactions

Pricing for Zoho Books is offered in five different monthly plans:

  • Standard ($15): Supports 3 users and 5,000 invoices
  • Professional ($40): Supports 5 users, plus invoices and other services
  • Premium ($60): Supports 10 users and includes various services
  • Elite ($120): Supports 10 users and includes premium features
  • Ultimate ($240): Supports 15 users and includes advanced analytics for your firm

Pros:

  • Great integration with certain apps
  • Great for invoices and billing
  • Cost-effective and easy to manage

Cons:

  • Mobile app does not allow payment
  • Better options are available for larger businesses

Sage Accounting

Sage Accounting

Sage Accounting is most suitable for smaller law firms and sole proprietors, but it is not lacking in functionality and features. Instead, it is a straightforward program that can give law firms peace of mind that their operations are being managed and monitored reliably.

Some of the great features that come with Sage Accounting include:

  • Invoice and bill management
  • Automated updates for transactions
  • Comprehensive financial reporting
  • Monitoring of time and money spent on each client
  • Access to cash flow predictions
  • Automatic bank reconciliation
  • Inter-office networking capabilities
  • Payment services in multiple languages and currencies

Sage Accounting has two levels of pricing: First, a $10 per month plan grants access to one user and includes basic services. For $250 a month, you can have unlimited user access to the program and a wider array of features and services.

Xero

Xero

Xero is growing fast as an accounting management option for small and growing law firms. One of its most attractive features is that there is no limit on the number of users who are allowed access. Another feature that makes it one of the top choices for law firms is its ease of use and intuitive interface.

Some of the great services that come with Xero include:

  • Views for both cash flow and accounts payable information
  • Pay Now buttons for invoices
  • Invoices customized for clients
  • Tracking of project costs and time requirements
  • Storage for bills, invoices, and receipts
  • Over 1,000 integrations and support for 160 currencies
  • Expense management and tracking

Three monthly plans are available with Xero:

  • Early ($12): Offers support for 20 invoices and basic features
  • Growing ($34): Provides bulk transactions for reconciliations
  • Established ($65): Provides in-depth expense and project tracking and reporting

Xero offers a 30-day trial period for firms that want to test the water without making a long-term commitment.

Pros:

  • Unlimited users for every plan
  • Reliable and secure
  • User-friendly interface
  • Customizable reporting

Cons:

  • Starter plan has limited invoicing capacity
  • Cancellation requires one month's notice
  • Mobile app lacks full features

FreeAgent

FreeAgent

FreeAgent is not the most well-known accounting program, but those who use it love it. It's touted for its simplicity and efficiency as well as for its wide array of tools. Small and upcoming law firms will find FreeAgent a great match as they work to thrive in the industry.

Some of the great features that come with a subscription to FreeAgent are:

  • Accurate expense tracking
  • An array of project management features and tools
  • Mobile and desktop time and resource tracking
  • Automated and recurring invoices
  • Bank account linking
  • Support for multiple currencies and languages
  • Sales tax tools

FreeAgent has just one plan, which gives law firms unlimited access to every feature the program has to offer without long-term contracts. At $10 per month for the first six months and $20 after, the price is just right for law firms on the move.

Pros:

  • Very easy to use
  • Great customer support
  • Many options for automation
  • Unlimited access to all features

Cons:

  • Less flexibility with only one plan
  • Mobile print is too small to see without zooming
  • Not particularly conducive to growing a business

TaxSlayer

TaxSlayer

As the name implies, TaxSlayer is a particularly strong software for all things tax-related. It allows firms to execute a variety of tax actions, as well as create and send important financial and tax documents. Millions rely on TaxSlayer to ensure they are complying with all of the necessary tax regulations and are properly fulfilling their tax duties.

Special features that are available with TaxSlayer include:

  • 100% guarantee on tax calculations
  • 1040 filing
  • 1099 income tax services
  • Quarterly tax payment reminders
  • Access to all major IRS tax forms and documents

Pricing for TaxSlayer includes one free plan and three paid plans:

  • Free: Includes 1040, state tax filing, educational expenses, and phone support
  • Classic ($29.95): Also includes earned income tax credit computing and child tax credits
  • Premium ($49.95): Includes phone and email support along with tax pro and IRS audit assistance
  • Self-employed ($59.95): Provides 1099 assistance with professional and personalized guidance

Pros:

  • Easy to switch from another provider
  • Support for major IRS forms and documents
  • Simplifies tax returns
  • Fast and user-friendly, as well as affordable

Cons:

  • No carryover provided for foreign taxes
  • Help resources are a bit lacking

Zola Suite

Zola Suite

Zola Suite is an option with some of the most powerful and plentiful tools for law firm accounting and bookkeeping. It offers most — if not all — of the tools other software options have as well as some of its own special features, most notably various management capabilities. You can manage your contacts, documents, and any other aspect of your law firm's operation with Zola Suite.

Key features of this software that is used often for larger law firms include:

  • Case management and tracking
  • Scheduling and task assigning
  • Premium calendar services
  • Customized intake forms and entry fields
  • User access
  • Role management
  • Report creation
  • Trust account management
  • Retainer management and tracking

Pricing is available at three levels with Zola Suite:

  • Core ($59): Includes basic accounting and document services
  • Enterprise ($79): Offers unlimited document storage, CRM software, and tracking
  • Enterprise Plus ($89): Includes department-based accounting and other premium features

Pros:

  • Automated calendar functions
  • Great for highly active firms
  • High-level support and user-friendly interface

Cons:

  • Client portal presents some complexities
  • Voids and refunds are a bit more complex than necessary

PCLaw

PCLaw

PCLaw has made its name as a one-stop shop that works well in any situation, especially with large law firms. Everything a big operation could want and need from an accounting software solution is available through PCLaw.

Features of this software solution include:

  • Management of calendars, matters, and documents
  • Billable and non-billable time tracking
  • Tools that streamline your financials and reconciliations
  • Comprehensive data at your fingertips
  • Fast document generation and template creation
  • Bill payment collection and expense tracking

You can fill out a form on the PCLaw website to receive a quote for specific services.

Pros:

  • Packed with tools and features
  • Simple tracking of time, deadlines, and filings
  • Highly customizable
  • High-end reporting functionality

Cons:

  • Basic functionality from the mobile app
  • Does not come with a payroll system
  • Lacks upfront pricing
  • Not affordable for many smaller businesses

LeanLaw

LeanLaw

LeanLaw was designed with the midsize law firm in mind and is specially equipped to handle the time tracking and monitoring, billing, and trust needs of law firms. When you add QuickBooks through instant integration, you have access to a full suite of tools to help you manage your small or midsize law firm with ease.

Special features that come with LeanLaw include:

  • Individual client trust account tracking
  • Client trust ledger creation and management
  • Tracking of time and expenses
  • Three-way bank reconciliation in real-time
  • Automated financial trust reports
  • Customized, automated workflows
  • Bill generation and automation of payments
  • Attachments to important documents

Two annual plans are available with LeanLaw. The monthly price of each includes:

  • Core ($40): Expense and time tracking and capped bulk invoicing
  • Pro ($55): LEDES billing, uncapped bulk invoicing, multiple trusts, and more

If you prefer a month-to-month subscription, then the price goes up to $50 and $65 for the Core and Pro plans, respectively.

Pros:

  • Great for law firms and lawyers who also use QuickBooks
  • Efficient mobile time-recording capabilities
  • User-friendly

Cons:

  • Not a comprehensive solution without QuickBooks
  • Lacks some features and tools
  • Billing customization is lacking

TimeSolv

TimeSolv

TimeSolv excels at project tracking, but project tracking isn't all this software option does. It allows you to efficiently and easily manage the billing aspects of your firm as well as the other important financial transactions you engage in, from expense tracking to automatic payment processing. TimeSolv can also take care of many of your firm's tax calculation and filing needs.

Some TimeSolv features include:

  • Simultaneous tracking of multiple projects
  • Customization of invoice templates for efficient billing
  • Payment collection and management
  • Multiple report-viewing formats
  • Multiple trust account management
  • Auto-pay setup for invoices
  • Easy integration with various popular programs like QuickBooks and Xero

Pricing for TimeSolv is based on how many people will use the software. Paying by the month is more expensive and costs $39.95 per user per month. Purchasing an annual subscription saves you $4 per user per month.

If you are on the fence about TimeSolv, you can take advantage of their 30-day free trial to give them a shot. TimeSolv also offers a six-month money-back guarantee for those who purchase the service but are not happy with it.

Pros:

  • Free trial and great money-back guarantee
    User-friendly platform
  • Efficient time and accounting management and tracking capabilities
  • Easy billing setup

Cons:

  • Trust account management is not as simple as other functions
  • Calendar lacks a reminder feature
  • Reports feature needs more customization

CosmoLex

CosmoLex

CosmoLex is another great all-in-one option for law firms. No additional software is necessary to access the powerful accounting and bookkeeping tools that you would expect to find in high-quality programs. Whatever it is you need to do, you are likely able to do it with CosmoLex.

Some of the many services that CosmoLex offers include:

  • Generating trust accounting reports
  • Printing checks for disbursements
  • Creating professional and customizable invoices
  • Generating bulk invoices

These listed services are in addition to the standard features most accounting software offers, including expense tracking, calendar management, and report generation.

Pricing for this all-in-one cloud-based software solution comes in at a whopping $85 per user per month and is billed annually. This is more expensive than most basic software programs but cheaper than some premium plans for other options.

Pros:

  • All-in-one accounting and bookkeeping solution
  • Attentive customer support
  • Lots of tools and features
  • Client portal for the uploading of documents by clients
  • Simple pricing structure

Cons:

  • Has a learning curve
  • May experience glitches from time to time

ZipBooks

ZipBooks

ZipBooks is considered by many to be the best accounting software for smaller law firms. It includes standard features and is incredibly easy to navigate. On top of that, ZipBooks is more than reasonably affordable; in fact, it's highly affordable compared to many options.

With ZipBooks, you have access to the following tools and features:

  • Client management tools
  • Effective time tracking
  • Automated billing and invoice management
  • Online payment options with PayPal and Stripe

ZipBooks offers a free option with basic features. It also offers three monthly plans:

  • Smarter ($15): Supports five users and includes time tracking capabilities
  • Sophisticated ($35): Supports unlimited users and secure document sharing
  • Accountant: Custom-priced option with client support and more

Pros:

  • Free plan
  • Easy to learn and manage
  • Offers time tracking by client and project
  • Supports invoice management
  • Generates statements and reports

Cons:

  • There is currently no ZipBooks app
  • ZipBooks is designed to be used in North America

QuickBooks Online

QuickBooks

QuickBooks is one of the oldest accounting software options and is an industry leader. Countless law firms have used the features QuickBooks has to offer to handle their financial and legal concerns. Although it can benefit law firms of any size, QuickBooks tends to work well with smaller and midsize firms.

Some of the fantastic features you'll get when going with QuickBooks include:

  • Convert estimates into invoices
  • Track bills, expenses, and revenue
  • Create and review various reports of your firm's finances and overall health
  • Extensive communication and networking between your firm's devices
  • Various forms of payment processing
  • Sales tax capabilities

QuickBooks offers four levels of pricing by the month:

  • Simple Start ($15): Includes all standard features and access for one user
  • Essential ($27.50): Includes access for three users with invoice management
  • Plus ($42.50): Offers access for five users with inventory and profitability projections
  • Advanced ($100): Allows access for more than five users and many additional features
  • Self-Employed ($7.50): Offers quarterly tax help and standard accounting tools

Each of these plan prices increases after three months to $30, $55, $85, $200, and $15, respectively.

Pros:

  • Ability to make cash flow projections
  • Time and expense tracking tools and features
  • Integration capabilities with over 600 apps
  • Invoice management

Cons:

  • No free plans are available
  • The Simple Start plan only allows access for one user
  • The learning curve is a little steep
  • Budget-tight law firms might have trouble affording the plans

Mistakes to Avoid in Law Firm Accounting and Financial Management

Accounting and financial management mistakes can threaten the well-being of any law firm. Fortunately, many of them can be easily avoided if you know which types of mistakes are the most common.

Not Distinguishing Between Revenue and Income

Without a professional accountant, you run the risk of mixing up revenue and income, which are two entirely different types of proceeds. Revenue refers to all of the money, payments, and proceeds your firm receives. Income, on the other hand, refers to what is left over after the firm's costs and expenses have been deducted from the revenue. Taxes, property expenses, legal dues, and payroll are typical expenses law firms must deduct from revenue to get income. Mixing up the two can give you a false picture of your firm's financial health.

Borrowing from IOLTA

Borrowing from IOLTA is not only a mistake; it is also against the rules. Client safety is one of the main concerns of bar associations. The bar will do everything possible to make sure client funds are safe. Borrowing from a trust account puts these funds at risk. Borrowing is also a red flag for potential insolvency or other financial problems a law firm may be going through. In other words, if your law firm even considers borrowing from its IOLTA account, you may not be in the best position to handle clients and should take action to remedy your finances.

Recording Trust Accounts as Income

Trust accounts are not income for your firm. Recording any money still in a trust account as income is a glaring error and is also against the rules. It is not until you have earned fees for services rendered that you may count funds in trust accounts as income.

Messing Up with Trust Accounts

Mistakes with trust accounts are common but not always forgivable. Disbarment and other sanctions are on the table when a firm messes up with a trust account. Various ways these errors manifest themselves include:

  • Erroneous deposits
  • Accidental misuse of client funds
  • Commingling of funds
  • Failure to accurately report accounts

Law firms must know that there is essentially no wiggle room for errors. Trust account liability almost operates like strict liability, where simply committing an act is proof enough for guilt. No reasoning behind the action can absolve the actor.

Fortunately, software is available to help monitor for errors and prevent them from happening in the first place.

Data Entry Mistakes

It is sad but true that some of the most troubling errors that law firms face are simple data entry mistakes. Unfortunately, their consequences are not always so simple and can affect significant portions of law firm business.

Contact a Professional for Help

Law firm accounting and financial management are pillars all law firms should rest on. There are far too many regulations and opportunities for error for an active firm not to have quality methods of handling its legal and financial accounting needs.

Grow Law Firm is a professional law firm digital marketing agency with the sole mission of helping law firms take their operations to the next level. Call today for a free consultation and learn what Grow Law Firm can do for you.

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Top techniques for busy lawyers to bring in more clients in 2022
  • Easy steps you can take to bring in more clients and up this year’s revenue
  • The top website and marketing mistakes holding your law firm back
December, 9th
10 am CST60 minutes
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    Sasha serves as Managing Partner for Grow Law Firm, a Chicago-based digital marketing agency focused solely on specialized growth strategies for attorneys and their practices.

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