The end of the year is quickly approaching. It is time to prepare for the year ahead while wrapping up all lingering financial and business matters. For law firms, this means preparing, calculating, and analyzing year-end accounting. It is imperative to get financial affairs in order to maximize profits and minimize debt.
Here is everything you need to know about how to conquer your year-end financial checklist for your law firm:
Effective accounting for your law firm is crucial to the firm’s success. Your financial statements must be complete, accurate, and current. Therefore, you need to keep everything organized and in order with each transaction.
You must meet your financial obligations to the state bar, your clients, and your firm. The significance of keeping your accounting current and accurate includes but is not limited to:
To get started on your checklist preparation, the following steps are important to follow to strategically maximize profitability and the growth of your law firm:
What Documents Are Most Important?
The most important documents to prepare your year-end financial accounting include:
Many lawyers are faced with the common question: Should I do my financial accounting myself or hire out? The simple answer is that most lawyers are not accountants—therefore, they may want to consider hiring a legal accountant to oversee their financial matters. However, it is vital to set up in-house software and billing systems to accurately track legal information and day-to-day operations.
Legal accounting is one of the most important aspects of having a law firm. Without efficient legal accounting, the law firm may not be successful in the long term. Without proper accounting, law firms can lose money, clients, contracts, violate compliance, and hinder their own success.
Expense tracking is pivotal to knowing where money is being spent. These details will keep lawyers out of debt and saving money. Accurate trust accounts are equally as important. Your clients must trust their money is being properly accounted for. Rules and regulations must be abided by in terms of trust accounts. Failure to do so can land lawyers in severe trouble with clients.
Accurate invoicing systems and software are pivotal to proper accounting. Without these vital systems in place, accounting becomes time-consuming. Keep systems up-to-date and efficient.
Time tracking is another crucial element in proper legal accounting. Keeping accurate time tracking is paramount to the success of your law firm. Having the right legal software and accountant can make all the difference.
Fall is a great time to begin focusing on year-end financial checklists. You don’t want to wait too long to gather the necessary documents to begin itemizing. Proper planning and preparation can prevent potential landmines in the future. Analyzing cash flow keeps records up to date and keeps your firm successful and growing.
Medical malpractice and personal injury lawyers must take accounting seriously. In these niches of law, money matters. Medical, legal, and PI experts do not provide their expertise for free. They must be paid—and sometimes heftily. Law firms typically must provide the costs upfront to the experts they hire to testify on behalf of their cases.
To try a PI or medical malpractice case, money is necessary. Whether lawyers ask their clients upfront for the cash to cover the case or pay it out of pocket, it is a necessary element to try a case. If the case is won, the client can pay out the lawyer from the winnings. However, if the case is lost, the lawyer must be able to cover the costs until the client can pay or fall into debt. Money matters as the lawyer must determine the upfront costs to consider whether to take the case.
Pinpoint and Collect on Outstanding Balances
Identifying and collecting outstanding balances is step number one. You must receive payment for the services provided. This will keep the firm’s earnings current and up to date. Collecting outstanding balances makes legal accounting much easier. Transferring balances into the new year can become messy.
Review All Trust Accounts
Even the most astute eye can make mistakes. Your law firm’s trust account is of utmost importance. You must be accurate and compliant to avoid potential issues. Double-check your accounts and ensure all client ledgers are accurately balanced. Reconcile all trust accounts before year-end—so start in the fall time. To make things easier, utilize legal accounting apps that reduce the risk of errors.
Review the Firm’s Financials
Your best bet for success is to wrap up this year to start the new year fresh. Tracking your law firm’s financials can set you up to continue growing and becoming profitable.
Review All Statements Including:
Prepare For Tax Season
Assess your “owner’s draw” account to ensure accuracy in the account. Deliberate whether expenses are business or non-business related. Clear receipts and itemize all travel expenses and tax-deductible expenses. Determine if you are up to date with your tax obligations. Did you meet your quarterly tax payment recommendations?
Outsource for Legal Accounting Help
Consider outsourcing for accounting help. Staying organized, efficient, and accurate can become taxing for legal professionals. You will have more time to focus on the growth and success of your firm when you outsource. Experienced accounting professionals can assist with tax compliance, accounting, financials, and preventing financial issues in the future.
LevelEsq offers trials lawyers financing and insurance for cases costs so they can protect their investments and grow their law firms. Using our funding solutions, you can direct your firm’s cash flow toward streamlining year-end accounting and finance activities to finish strong rather than tying up your money in cases until a settlement is reached or your case is tried.
If you are ready to protect your law firm, get organized, and pave the way for financial and business growth, contact LevelEsq today! Tap here to schedule a call and learn how to start treating your law firm like a business.