There are only so many hours in the day, and most lawyers need to spend that time focusing on their clients — not sending bills, mastering their accounting software, creating financial reports (or trying to interpret them properly), or following up on late payments.
While accounting might not be your forte, you don’t want your firm to suffer due to some simple mistakes. Review these five law firm accounting mistakes that could be costing your firm a lot of money, and learn what steps you can take to avoid them.
5 Law Firm Accounting Mistakes to Avoid
1. Starting Work Without Reviewing Payment Obligations
Before you even start work on a client’s case, you need to ensure that both you and the client understand how the payment process works. When you keep open communication from the start, you can avoid misunderstandings in the future. Failing to review payment options can lead to collection problems with a client down the road.
2. SLOPPY TIME TRACKING
We all know how tedious tracking your time can be. Keeping up with how you spend every minute of every day might be a task you just don’t have time or energy to prioritize. But, reconstructing your time logs later in the week can be a challenge and lead to lost hours. You always want to give your client an accurate view of how you spent time working on their case.
Be diligent in your tracking. Use a mobile or desktop app to keep track of your hours in real-time and eliminate the need to reconstruct later. It’s in your best interest (and your client’s) to do so.
3. USING DISPARATE SYSTEMS FOR ACCOUNTING AND BILLING
When you lack uniformity in your accounting and billing systems, it’s easy to lose profits. Many law firms make the mistake of using two different systems, which requires data to be entered more than once — a situation that can easily lead to discrepancies. When your systems are not synced, there’s no way to have an accurate picture of the state of your law firm’s finances at the ready when you need it.
To avoid this issue, reduce the number of systems you use down to a single one that includes both billing and accounting functions. You’ll be assured that all accounts are up to date.
4. PROCRASTINATING ON BILL COLLECTION
Bill collection is not always comfortable, which is why some law firms become lax with payment requirements. However, you should never wait to collect unpaid bills, regardless of the client’s situation. The longer you wait to collect payment, the more likely you’ll face risks like losing track of invoices, forgetting how much you’re owed, or encountering discrepancies in your accounts.
The best solution to avoid these lost profits is to partner with a remote bookkeeping professional to handle your accounts receivable process. With experts in charge of this aspect of your firm, you’re able to return to the work you need to do — and they can worry about payment collection.
5. RELYING ON OLD REPORTS
Unfortunately, many companies, including law firms, make the mistake of relying on old reports instead of real-time data. Reports that are from last month or last quarter may not give you an accurate view of the financial state of your company. And, without real-time insight into your accounts, it’s difficult to identify potential problems or discrepancies.
Outsourcing your accounting needs to a remote bookkeeping expert can help you avoid out-of-date information. They have the systems and processes in place to maintain account accuracy and keep you informed about the state of your business.
As you read through these law firm accounting mistakes, do any sound a little too familiar? If so, take steps to stop the bleeding profitability and start improving your accounting processes.
The first step is to select a remote bookkeeping partner with experience in accounting for law firms, like Keeping Your Balance. We know how to get your finances back on track, and our team can empower you to effectively run your firm.