As a lawyer, keeping track of your firm’s transactions isn’t just good business—it’s the best way to ensure that you don’t run afoul of professional responsibility rules. While most lawyers understand the importance of good bookkeeping practices, many simply do not have the time to manage their financials properly. This is especially true of smaller firms with few or no administrative staff.
Bookkeeping can quickly snowball. Failing to record even a few transactions can turn into forgetting to do so for weeks. Many lawyers find themselves overwhelmed by the process and put it off for another day. Unfortunately, that may set your firm up for financial difficulties.
Here are a few tips to help you stay on top of your financial transactions.
1. Create an account indexing system
A chart of accounts tracks five major things: revenue, expenses, client trust accounts, client expenses and owner equity. You can add as many subcategories as necessary, but the point is to create one big index of all your financial accounts. This is particularly helpful when it comes time to reconcile accounts—it makes it easy to determine in which category the revenue belongs.You can create a chart of accounts in your preferred spreadsheet or word processing program, or get a bookkeeping tool that includes this feature. Just make sure that it’s easy to update—skip the pen and paper for this task.
2. Get familiar with IOLTA bookkeeping
As you know, any client funds must be kept in an IOLTA account separate from your personal or firm’s money. The key here is to make sure that the numbers in your IOLTA accounts match the numbers on your books, and that each transaction is meticulously recorded.
3. Never intermingle business and personal expenses
One of the biggest mistakes any business can make is intermingling business and personal expenses—and it gets significantly more complicated when it’s tax time. When you use your law firm and personal accounts interchangeably, you risk missing out on tax deductions. You will also have a much harder time getting a complete financial picture for your firm. Alwayskeep separate business and personal accounts.
Of course, mistakes happen—you might accidentally deposit a check in the wrong account, for example. Just make sure to track it in your bookkeeping software after you rectify the issue.
4. Keep track of your transactions
Failing to keep track of transactions will jeopardize your accounting and bookkeeping. Find bookkeeping software that works for you, then commit to updating it daily. This ensures that you don’t create a bookkeeping nightmare by losing receipts or forgetting to record a transaction.
The more detail you can provide regarding your expenses, the better. For example, if you’re going to a business lunch, take notes about what you talked about. That way, if you’re subjected to an audit, you’ll have plenty of proof to support your numbers.
One of the best ways to keep your books accurate and reconciled—especially as your firm grows—is to hire professional bookkeeping help. Contact MCG Solutions today to learn how we can assist you.