Practice Alchemy has worked with countless law firms that attempt to do all of their bookkeeping internally. While some firms can make it work if they have the proper personnel, processes, and technology in place, many firms find themselves drowning in invoices and spending far too many partner hours on bookkeeping. In this blog, we’ll touch on four of the most useful law firm bookkeeping tips to ensure your practice is running smoothly.
Know Your Limits
Your degree is in law, not bookkeeping. If you’re handling your books yourself, the odds are that you’re making mistakes. It’s one thing to send out some invoices; it's a completely different ballgame to generate financial projections and attempt to balance your books. The world of bookkeeping is incredibly complex and ever-changing, just like the legal space. It’s extraordinarily difficult to have a foot in each world and expect good outcomes in both. If you have even the slightest doubt about your firm’s financial reporting and accuracy, trust the experts, just like an accountant would if he had a legal matter to tend to.
Have A Financial Leader
You can have all the administrative bookkeeping staff in the world, but many law firms lack someone to oversee their general financial health, make budgetary projections, and conduct analysis. Having someone in charge of your overarching financial goals is critical to your ability to grow and scale. At this point, you might be thinking that you certainly don’t need a full-time CFO. Chief Financial Officers tend to come with a high price tag, and you may not have enough work for a fully dedicated asset to take on. That’s not a good reason to ignore the CFO position altogether. Outsourcing provides an opportunity to partially utilize a high-level financial executive and gain valuable insights, without the exorbitant cost. Partner with an agency that allows you to have a CFO on retainer, for 10 or 20 hours a week.
Understand Scale And Investment
Just because your bookkeeping department is large enough to handle your firm right now doesn’t mean it will be able to do so a year from now. If your firm is growing quickly, or is planning on pursuing a rapid growth strategy, your financial capabilities are going to need to grow to keep pace. It can be incredibly difficult and expensive to quickly hire the people you need and get them up to speed, especially in this incredibly competitive job market. Outsourced law firm bookkeeping agencies provide that expertise on-demand and are built to scale as required.
Even if you’re confident in your firm’s ability to handle day-to-day bookkeeping and feel you don’t need recurring monthly services, it's always good to have an outsourced CFO check in on your books on a monthly or quarterly basis. Many firms are hesitant to outsource their finances because of a high perceived cost, but fail to recognize that if there are errors in their books that require them to go back and correct them, that’s costing them more money than they would have spent to have them done right the first time, especially if this occurs around tax time. Invest in your team now, not later.
Error-free law firm bookkeeping requires meticulous attention and tracking, so if you do make a mistake, you can identify and correct it. It’s always best to trust an expert in order to mitigate errors, but there are a few things your in-house team can focus on as well. For instance, it's important to ensure that your clients’ expenses are being tracked on a very detailed, granular level, that no commingling or mixing of funds is taking place, and that your firm is using its business credit card for business expenses only. Taking these steps puts you on a good path to having clean, accurate books.
Beyond day-to-day bookkeeping tasks, accounts payable and receivable are major areas that cause trouble for law firms. If you aim to tackle your AP/AR in-house, one important tip is to establish a schedule and stick to it. This provides valuable structure for sending out invoices and also manages the expectations of your clients and partners. Without a schedule, it can be easy for invoices to slip through the cracks and for firms to lose track of where their money is going to and coming from. AR/AP can also be remarkably time-consuming, so not adhering to a schedule and waiting until the last minute can create time crunches and unnecessary stress.
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If your practice is struggling to keep up with its bookkeeping, you certainly aren’t alone. Practice Alchemy has worked with dozens of firms to provide them with the peace of mind and financial clarity they deserve. After all, your focus should be on running your practice, not balancing your books. Request a free consultation to learn more about how Practice Alchemy can help you streamline your financial operations.