Law Firm Bookkeeping: Setting Your Books Straight in 2025
Proper law firm bookkeeping ensures accurate, error-free books, helps you stay in compliance, and enables you to plan for the future. If you’re one of the 70% of small businesses that don’t have an accountant or bookkeeper, you need to address the common issues firms face and follow the best practices to get your books in order.
If you have the right systems and processes in place, you can make bookkeeping easier for your firm going forward.
Do you want help with your bookkeeping?
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Common Issues with Law Firm Bookkeeping
A lot can go wrong with your bookkeeping, but for law firms, there are common issues we see that go beyond data entry errors.
(Side note: if you have data entry errors – you need to get those fixed as soon as possible!)
Mismanagement of Trust Accounts
Trust accounting requires you to maintain accounts that are used strictly for client funds. For example, if you open an IOLTA bank account, you cannot:
- Use these funds for non-client purposes
- Mismanage these funds
- Fail to report these funds
You cannot access these funds early, and all records must remain as detailed as possible. If you mismanage these funds, it can lead to penalties, license suspension or even loss of your right to practice.
Meticulous record keeping, separate accounts and the right software can help you keep your trust accounts in order.
Read our guide on trust accounting for lawyers.
Overlooking Outstanding Receivables
You’re running a business, and while trying to offer your clients the best legal service possible, it’s easy to overlook leaking money. Overlooking a billable hour here and there adds up quickly, especially if you have numerous lawyers in the firm.
Your firm may be losing money by:
- Failing to track all billable hours
- Invoicing clients late
So, what can you do to avoid overlooking receivables? You can maintain strict hour-tracking requirements, offer multiple ways to pay invoices and automate the invoicing process. Simple, actionable steps in your billing process will keep more money in your firm and help you keep accurate books.
Best Practices in Law Firm Bookkeeping
If you’ve eliminated the above common issues above for your law firm, you’ll be well on your way to keeping your books in order. But we recommend that you follow these best practices too maintain accurate bookkeeping:
Stay on Top of Your Books
One of the best practices your firm can follow is staying on top of your books. If you fall behind on your books, it starts a vicious cycle of trying to catch up on your books, stay on top of your current cash flow and even maintain trust accounts properly.
What do we recommend?
Use accounting software for law firms that:
- Connects to your multiple bank accounts
- Records all transactions you make
- Classifies transactions properly
- Makes it easier to manage expenses and revenue
If you stay on top of your books throughout each quarter, it will only strengthen your business’s finances throughout the year.
Collect Outstanding Receivables in A Timely Manner
If clients owe you money, it negatively impacts the financial health of your law firm. You might send out invoices, but until the money hits your bank account, it stays in your accounts receivables.
Slow-paying clients lower your cash flow and can cause you to struggle to pay overhead costs.
You can collect on your outstanding receivables in a few ways:
- Setup automated invoicing and reminders
- Review your accounts receivables monthly
- Follow up with clients who do not pay, even after sending invoices
- Offer your clients multiple payment options to encourage faster payments
Collecting your outstanding receivables should be a top priority for your law firm and is worth investing the time to put processes in place to do so.
Set a Budget
No one wants to budget – they want to make money – but it’s an integral part of running a successful law firm. You can expect to succeed if you:
- Set benchmarks for the amount of revenue you want to hit.
- Budget for your expected expenses and cash flow.
Your budget must also include annual costs and dues. If you’re in the first year of operating your firm, it can be tricky to know how to budget properly. Project your revenues and list all of the mandatory expenses you expect to have, and don’t forget to add your goals to your overall budget.
Accurate bookkeeping is crucial to the financial health of your law firm. Avoiding the common problems above and following the best practices will put you on the right financial track. But if you want to spend more time on your legal services and less on your bookkeeping, we can help. Schedule a consultation to learn more about our virtual law firm bookkeeping services!
