Running a law firm is hard enough, but when you add bookkeeping to the mix without the help of an accountant, it is incredibly easy to become overwhelmed and make mistakes. After all, you did not go to law school to spend time reviewing numbers, your time is better spent servicing your clients. In this blog, we highlight the five most common law firm bookkeeping mistakes we’ve seen time and time again, and how to avoid them.
Missing Out on Data-Driven Decision-Making
Data-driven decision-making is more than just a catch-phrase, it is the way most small businesses ensure financial health and growth. If you’re doing your own law firm bookkeeping, it’s likely that you are not going that extra set, and your practice is likely missing out on all of the rewards of high-level oversight and data analysis.
It's hard enough to just get your books done on a timely basis, it’s a whole other ballgame to forecast revenue performance and communicate your projections in a way that is easily digestible. Most law practices have a surface-level view of their finances, basic balance sheet reporting, barely touching the tip of the iceberg when it comes to the analysis and real-time visibility they could have access to.
A professional can provide you with not only standardized processes for organizing your finances, but with dashboards, insights, and projections that can make or break your business. This data-driven mindset allows you to run a lean, efficient, and profitable business and provides you with the confidence you need to focus your energy on serving clients.
Poor Handling of Client Funds
Your clients trust you with their money, and it's your job to ensure you’re managing it properly. Commingling of funds, although usually accidental, is more common than you think. Your practice needs bulletproof financial processes to ensure all of your client’s money is being handled correctly. This is especially true if your practice is growing quickly, as it becomes harder to stay organized, and things can slip through the cracks (especially if your books are a secondary priority to running your practice). Additionally, failing to send out invoices on time or failing to properly track billable time can make it easy for your practice to lose money or fracture client relationships without you even realizing it.
With changing rules and regulations in the world of accounting and compliance, it can be very hard to stay up-to-date while simultaneously running your practice. Rapid growth can be a double-edged sword in this respect, as it's easy to be so caught up with growing your practice that you take your foot off the gas in terms of compliance. The slightest error can lead to stiff penalties down the road, ranging from damage to your firm’s reputation to disbarment in the case of serious infractions. It certainly behooves you to ensure your books are accurate, and outsourced law firm bookkeeping services are a great way of staying on the straight and narrow.
Data Entry Errors
This ties back to the theme of organization and standardized processes, but it is such a common pitfall that it warrants its own category. The smallest data entry error can lead to funds being lost or not properly accounted for, and this can contribute to problems like poor handling of client funds or compliance issues downstream. Setting standardized procedures for accounting and bookkeeping data entry and management mitigates this concern and ensures accuracy in your books.
Missing Out on Data-Driven Decision-Making
Even if you’ve taken a couple of accounting classes in college, or closed a few books when your practice was still in its infancy, you’re far from a professional. As a lawyer, you’re most productive and effective at practicing law, and trying to handle law firm bookkeeping yourself is detrimental both to your billable capacity and your law firm’s financial success.
If an accountant needed help with a legal matter, he’d call a lawyer. Don’t be afraid to seek help. Bookkeeping fees are almost certainly going to be lower than the billable time you’re spending closing out the books, not even taking into account errors and lack of data visibility that will end up costing you thousands.
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If your law firm has made any of these five mistakes, it’s a good time to consider outsourcing your bookkeeping function. Practice Alchemy was founded by lawyers, for lawyers, and we offer comprehensive legal bookkeeping and accounting services that help our clients achieve full financial transparency and make informed business decisions.
If you’re interested in learning how Practice Alchemy can help your firm with your accounting and bookkeeping needs, request a free consultation with our team.