Retainers In A Client Trust Fund
Attorneys often ask for retainers from their clients, which means the money is in the firm’s possession. However, until that money has been earned, the firm doesn’t have rightful use to it.The problem law firms have is the ability to separate individual client ledgers from trust fund monies. It’s important law firms don’t accidentally intermingle the monies, and the trust fund dollars aren’t used toward the firm’s overhead costs.
An industry specialized bookkeeper can implement the proper system to keep these problems from occurring. Advanced features and settings of the most widely used cloud-based accounting software, Quickbooks Online can be used to avoid trust fund accounting errors such as over drafting, posting money to the wrong accounts and noncompliance for ignoring the three-way reconciliation method.
Properly Assessing Case Costs
From the moment a case is accepted, costs begin to occur. Law firms incur litigation expenses on the behalf of their clients and IRS has regulations on how to treat these for tax consideration.
And, this is where law firms find problems. Costs may be treated as “Reimbursable Client Costs” or “Advanced Client Costs.” When it comes to “Advanced Client Costs,” they are considered a loan to your client and therefore they are not tax deductible and they should be recorded as an asset on the Balance Sheet. “Reimbursable Client Costs” should be noted on the Profit and Loss Statement.
When this is not done correctly, it could lead to an IRS compliance issues.
Realize Where The Money Is Coming From
A lawyer’s job isn’t easy, but add in the effort to run a firm, and it can become that much harder to do. It’s not just about caseloads anymore; it’s about transitioning from being “just” a lawyer to being a lawyer/businessperson.
In order to make the right business decisions for the firm, you need to know from where the income is coming into the business. A lack of this knowledge can hinder the firm’s success and could lead to revenue loss. Firms that track income by the kind of case it comes from can expand their business opportunities. How so? They can generate instrumental business intelligence that helps the firm know how to use their marketing money and resources effectively.
When you decide to open a law firm, it’s different from being “just” an attorney. The biggest challenge you’ll face is the legal accounting aspect of your firm. Although it can be intimidating, help is just a click away. If you don’t have the need to hire an in-house bookkeeper, but you are overwhelmed with the bookkeeping tasks, hiring an industry-specialized virtual bookkeeper might be just the right solution for you.