Law Firm Accounting & Bookkeeping A 2026 Guide

Once you’ve selected a bookkeeper, billing is handled monthly through our secure platform. Everything, from invoicing to communication, is managed in one convenient location. The right bookkeeping investment balances cost against risk and value. Underpaying leaves you exposed to compliance failures, messy books, and strategic blindness. Monthly retainers work better than hourly billing for ongoing bookkeeping.

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Manually tracking hard and soft law firm expenses can become time-consuming. Even if you use apps or other solutions to track expenses, it can be tedious to consolidate data into one spot. The ABA requires lawyers to maintain client trust account records for at least five years after work has ended. Records can include bank statements, checkbook registers, and any supporting documents related to the account. Accounting for law firms requires a keen eye and a specific skillset.

• Legal billing software with built-in expense management tools can aid in this process.
• They should also have a proven track record of accurate recordkeeping, trust account management, and generating comprehensive legal industry financial reports.
• These mistakes waste time, create mismatched records, create billing complications, and potentially compliance violations.
• If your team does not have a clear time tracking policy or a clear agreement with the client, you may also have issues properly billing for that time.

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Starting with lower rates can help you gain initial traction, but adjusting your prices to reflect your expertise and the value you offer is crucial as you grow. Instead of debiting cash and crediting income, you should debit the IOLTA account with a corresponding credit to Trust Account Liabilities. When you later earn your fee, you would debit Trust Account Liabilities and credit your revenue account. Having too many accounts creates headaches later on, as it takes more time to review the books and increases your chances of making mistakes. For example, if you purchase office supplies for your business, you should have an “Office Supplies Expense” account. But you don’t want to set up separate accounts for legal pads, pens, printer ink, etc.

Legal-Specific Integration Costs: The Make-or-Break Factor

Conversely, if you provide services to small companies with less complex needs, your pricing should reflect the level of work involved. The Law Lab Blog offers real-world perspectives, best practices, and actionable strategies for legal accountants and law firm professionals navigating an ever-changing industry. If there are any differences between the three, your trust reconciliation report should show the reason for the discrepancy. For example, say you deposited a check for $10,000 to the trust account on December 30 but the deposit didn’t clear the bank until January 2. The December 31 bank statement shows a balance that is $10,000 less than your books or the client’s trust ledger due to a timing difference.

Accounting

• Understanding what goes into accounting is essential; you still are not an accountant or a bookkeeper.
• Leverage a spend management solution, like MyCase Smart Spend, to streamline your law firm’s financial planning and expense management.
• You can’t use Excel spreadsheets to maintain all of your financial books and records for an entire year.
• It is important for lawyers to account for any discrepancies between billed hours and actual payments.
• The December 31 bank statement shows a balance that is $10,000 less than your books or the client’s trust ledger due to a timing difference.
• One option is to ask clients to include an additional retainer deposit for anticipated expenses that the firm holds in its trust account.

LawPay also ensures your law firm accepts payments that comply with your state bar’s regulations surrounding trust (IOLTA) accounts and the American Bar Association (ABA) guidelines. Managing your books via accounting software may get you started as a solo attorney. But, if you want to spend your time focused on practicing law rather than deep in the weeds of your law firm’s accounting and financial management, you may want to consider hiring help. One (or more) of these professionals can greatly assist with your law firm’s accounting. This includes preparing tax returns and reconciling bank statements with general and client ledgers.

Questions to ask potential accounting professionals

Pricing your work as an expert professional requires careful consideration of various factors. Remember, pricing is an art form that requires continuous evaluation and adjustment. As you gain experience, you will find the right balance that maximizes your profitability while offering fair value to your clients. Setting the right price for your work is crucial to running a successful business. Whether you provide cleanup services, bookkeeping, or accounting, determining the optimal pricing strategy requires careful consideration.

Generic bookkeepers charge less but rarely deliver the compliance oversight law firms require. At TydeCo, we understand the complexities of law firm accounting, from accurate time tracking to trust accounting compliance. Our services are designed to streamline your financial processes, helping you save time and increase profitability. We specialize in bookkeeping for law firms – monthly trust reconciliation, IOLTA compliance, and financial reporting designed for legal practices. Yes, there are firms and providers that focus specifically on accounting services for legal practices.

Your bookkeeper goes into your accounting software regularly (at least weekly) and records all the money coming in and all the money going out so that it appears in the correct place. As a solo attorney, managing your books via accounting software may get you started. Yet, if you own a small firm with multiple attorneys, employees, or contractors, hiring a bookkeeper is more than worth it. Once you grasp these basic methods, we recommend bringing in an expert bookkeeper to help you keep the most accurate books. Hire a tax professional like a CPA to help you with your business taxes. Bring in a legal accountant to help you strategize how to help run your How Bookkeeping for Law Firms Strengthens Their Finances business through financial reports.