We know it’s not easy running a law firm. It probably seems that there just aren’t enough hours in the day for all the managerial and administrative tasks you have to fit in. You went to school to learn how to practice law, of course. But now that you’ve started your own practice, you find yourself bogged down with extra responsibilities, ranging from “pounding the pavement” to get more clients to managing your office staff. And then there is the matter of keeping the books, which is no small task in itself.
Your expertise and experience are certainly best put to use in working on your cases. But the minute that you decided to start your own practice, you effectively became the owner of a small business. That move brought with it a host of new responsibilities, and the amount of your time that they consume only grows as your practice does. Bookkeeping is one of those “necessary evils”. There is simply no way around the fact that you need to keep financial records. Your law firm won’t survive if you don’t accurately manage the flow of money in and out, and if your records aren’t complete and precise, you won’t have an easy time of things when tax filings are due.
Fortunately, while every type of business is different and has its own unique subtleties, the basic principles of bookkeeping are the same everywhere. In fact they can be reduced to a few simple steps:
Tracking Expenses and Income
Every dollar you spend on business expenses is a dollar on which you don’t need to pay income tax to Uncle Sam, so keep thorough records of these expenditures. There’s no rule as to the manner in which you’re required to keep these records. We’ve seen everything ranging from a shoebox filled with receipts to very sophisticated software systems. The main point is simply not to let anything slip through the cracks in this regard.
Tracking of your income is equally vital. As a law firm, most or all of your income will be generated by billing your clients. You can’t get around the need to have a system in place for tracking the hours you devote to a client, billing them for those hours, and keeping track of their payments when you receive them. Accuracy and completeness are obviously of the utmost importance here as well.
Posting to Ledgers
Ledgers can be a bit intimidating, especially if you remember the image of huge ledger books spread out over a bookkeeper’s desk. But the idea is actually pretty simple. You need a summary, on a regular basis (it could be daily, weekly, or monthly), of your income and expenses. Again, there’s no real rule for how to do this. It can be managed manually on paper, or using software.
Creating Financial Reports
There are all sorts of financial reports that can be created for law firms and other businesses. In basic terms, what needs to be done is to take the information that you’ve summarized in your ledgers, and mold it into a form that shows you the financial status and health of your business. All the data on your income and expenses won’t be of any value to you until you do an analysis that actually shows what your profit is. The most fundamental reports you’re likely to need will include a Balance Sheet, a Profit & Loss Forecast, and a Cash Flow Analysis.
We know this can all be quite overwhelming, and definitely is not the type of work that you set out to do when you went to law school. We at KYB are available for a free consultation, so you can see for yourself whether it makes sense to outsource all of this work and get it off of your plate, so you can put your valuable time to much better use.