Bookkeeping can take up a lot of your valuable time. This is the main reason why most firms don’t keep their finances up to date every month. Bookkeeping, however, is very important and not something you want to overlook or set aside. Remember that it is only through consistent and accurate management of your financials that you can effectively manage and grow your finances. Unfortunately, many attorneys often make mistakes with their bookkeeping. Here are some of the most common bookkeeping mistakes attorneys make.

1. Hiring The Wrong Bookkeeper

We’ve all had bad experiences with bad accountants or bad bookkeepers. I personally have come in replacing a bookkeeper and had to do two years worth of cleaning up the first six months I was hired. It is very difficult, and sometimes impossible to clean up your books that far back while still maintaining day-to-day duties. Imagine laying tracks for a moving train…that is exactly what it feels like. Attorneys often have bookkeepers handle their IOLTA and other trust accounts, as they are afraid of making mistakes themselves. You need to be extra vigilant as any trust bookkeeping mistake can have serious consequences, up to an including losing your license to practice law. Accurately tracking expenses and income in the correct categories can help you properly measure your financial success. Knowing the tax treatment of every expense and income category can also help you get significant tax savings.

2. Poor Record Keeping

Improper record keeping makes it easy to forget about small expenditures that seem unimportant. Having a proper filing system and keeping accurate records every month will not only help you save money and time on your income tax, but also save you thousands of tax dollars. In today’s age, keeping paper receipts is something of the past. There are plenty of apps available at the palm of your hands that allow you to simply take pictures of your receipts and even automatically sync with your bookkeeping software.

3. Not Having Data Backups

There is always the possibility that something might happen to your data. Your computer may crash or you may accidentally delete your file. Having a backup of your data is very important, or alternatively have your software saved in the cloud. Having a cloud based software is much more safe, as computers get outdated so frequently now, you do not have to rely on that sole computer to have your books saved on it’s own hard drive.

4. Poor Petty Cash Management

Law firms often have a certain amount of petty cash to spend on things that suddenly come up, but they don’t know how to track it. For example, maybe you need to purchase a money order that day to send a filing fee for a client. Your firm must have a system that lets you keep track of petty cash available to you and what it’s being spent on. You can get receipts for all expenses or buy a petty cash lock box from the local store near you. If your firm currently does not have a petty cash system, contact us and we will gladly provide a spreadsheet you can begin to use at no cost. Really, there is no catch!

5. Not Tracking Reimbursable Expenses

Picture this; you are grocery shopping at your local store and see a deal that you just cannot pass up on some office supplies. You purchase them with all of your groceries and use your personal funds. You want to be able to track these small expenses because they can grow to be a rather large amount that you can then write off when doing your taxes. Although this should not be a common practice, the reality is that it will happen from time to time. If you don’t include these reimbursable expenses, you may lose money and tax deductions. Implement a policy that makes it easy for you to consistently record and track reimbursable expenses.

6. Poor Communication

It is important that you have proper communication with your bookkeeper and your employees, if you run your own law firm. Keep your bookkeeper involved with what’s happening in your firm. This helps them create financial statements that reflect your company’s actual operational needs.

Many people waste a lot of time trying to do the bookkeeping on their own or don’t hire a professional to help them. When it comes to running a law firm, time is of the essence. Many attorneys bill on an hourly basis, so time spent trying to keep your books in order, is time you could be using that is generating income. Hire a reliable and honest bookkeeper that specializes in your field to do the task for you. This professional will know what to record and how to record it. They will also know accounting changes that will affect your financial state on an ongoing basis. This will help you save time and money in the long run.