How to Fix Your Law Firm's Financial Mess: Bookkeeping and Accounting System Management for Lawyers

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• published: 24 Mar 2016
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http://www.kahunaaccounting.com Thanks for joining Kahuna Accounting's Micky Deming as he talks about how to fix your business' financial mess. Step 1: How to Know You Have a Mess This is the easy part. Chances are you are already well aware of the mess. If not, these are some common indicators. • Thinking of talking to your tax preparer makes you want to cry • Your tax preparer thinking of talking to you makes her want to cry! • You have a stack of paper and receipts on your desk • You can’t pull a Profit and Loss statement on demand • You use a practice management system, but it has no integration with an accounting system • You are doing double-entry of transactions The list goes on and on, but for most attorneys with a mess, this is their reality. They are always looking backward, playing catch-up and never have a true sense of where they stand financially. Step 2: Prioritize Fixing the Mess As stated above, many of you are aware of the mess, but aren’t exactly motivated to fix it because of one of two reasons: 1. You believe that’s just how it is and have accepted it 2. You believe it’s too hard or expensive to fix the mess and would rather not deal with it Step 3: Fixing the Mess Let’s hope you’ve now committed and said, “I’m tired of this mess, I’m ready to get it fixed. What do I do now?” Let’s break this into 5 steps: 1. Proper setup The reason so many law firms currently have a mess for bookkeeping is 99% of them never got started correctly. And once you aren’t started correctly, it’s only going to get worse over time. The first step in getting on the right track is to stop and start over. You need a new system with a clean slate and to start rebuilding the transactions. 2. Proper tools As an attorney, you are likely very reliant on your practice management system. Many of the attorneys we work with love using Clio to manage their matters and serve their clients. To complete proper bookkeeping, you need accounting software to setup and document all transactions. You need to get into an accounting system you are comfortable with and that works well with the practice management system you are using. If you’re using Clio, you can integrate it with Xero for a comprehensive financial solution. 3. Chart of Accounts When you are getting your fresh setup, what you need to create in the accounting system is a chart of accounts. This is the structure of your law firm’s accounts where you can book transactions to the proper accounts. 4. Reconcile Regularly What this means is you need to categorize every transaction that happens – everywhere that cash moves. When you receive a payment, you need to tie it to a revenue account and invoice. When you pay a bill, you need to reconcile it to an expense account and tie it to a receipt. You would have set up the expense and revenue accounts in your chart of accounts. Bank reconciliations are something that requires discipline. Many business owners get lost here because they let things pile up. Reconciling your transactions is like doing the dishes. If you do a little bit every day it’s not a big deal. But if you let them pile up, now you’ve got a real mess. If you can reconcile regularly, you’ll have everything you need to complete your bookkeeping and have an easy tax season by providing the proper reports at the click of a button. 5. Get help when you can Even though the steps of fixing your mess are simple enough, at some point, it’s good to recognize your time is not best spent reconciling transactions. A best case scenario is to find someone who can do the setup for you, integrate your systems and who will reconcile transactions regularly and send you financial reports. If you’d like help, Kahuna Accounting specializes in turning bookkeeping messes into beautiful, simple accounting systems. Reach out to us here and we’ll talk about how we can help: http://kahunaaccounting.com/bookkeepi...