Law Firms Face Unique Hurdles
Bookkeeping and finances are hard for all businesses, and because of the complexities of the bar association rules, it’s even harder for lawyers, we get it! This is why it is important to have a bookkeeper who is trained in this realm. Here at Sound Bookkeepers, we’ve been working with lawyers in the accounting and business finance field for over five decades now! Continue reading to find out what hurdles are specific to law firms.
Client Costs/Expenses/Advances
This relates to expenses that are paid by the firm on the behalf of the client that are not from a Trust Account, and in turn, become a sort of a non-interest-bearing loan to the client. An example of this can occur in your practice when you are advancing a filing fee and then will bill the client at a later time. Here is the tricky part: you need to be well aware of all IRS rules and regulations. In instances like these, where there are client advances, the IRS expects you to record these as a cost receivable, which is an asset on your balance sheet and importantly does not count as a business expense that is deductible. Among a similar form of assets, things can become even more complicated. For example, according to the rule above, when you write out checks from your operating account on your clients’ behalf you record that as a cost receivable, but if you have an expense that is non-cash things get even trickier. For instance, the photocopies that you make from your internal photocopy machine could, at times, be recorded only when collected, or in other circumstances can be recorded as a “contra-expense” in order to portray the offset of the cost of maintaining the machine. As you can see there is a lot to keep track of, and on top of that, you need to put your all into running your practice. That is a lot and can quickly become very overwhelming. You can count on Sound Bookkeepers to do all of this for you. We know the IRS and accounting standard called GAAP, and will make sure your books are always under these guidelines and stay in accordance.
IOLTA (also known as IOTA) Trust Accounts
As a lawyer, you know how important these accounts are to your practice. They hold the basis of critical activity of your firm’s accounting. Everything in the IOLTA must be accounted for, down to the last cent. You also need to know which client’s money and for what reason it is held in trust at all times. In addition to this, like in the previous section, it also comes about with certain rules and regulations regarding when the transfer happens, and how it’s recorded and so forth. On the bright side, we at Sound Bookkeepers deal with this too. Have us manage your IOLTA account when you choose the Basic Practice, Practice Plus, or Full-Service Law Firm Bookkeeping plans with us!
These are just two of the large hurdles that lawyers face when they do their own bookkeeping. Budgeting is very important in order to make sure that your practice can stay functioning and not go in the red. With bookkeeping, it’s much easier to see how well your business is doing and make educated assumptions and analyses. Hire a bookkeeper for peace of mind and you’ll have a better practice!