Common Accounting Mistakes By Lawyers

“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
– Jean-Baptiste Colbert

Like taxation, accounting can be a delicate balancing act between maximizing revenue and minimizing costs. And just as with taxes, accounting can be complex and requires skills to navigate it successfully. Because of this complexity, even the most well-intentioned lawyers and law firms make common accounting mistakes.

Some Common Accounting Mistakes Made By Lawyers And Law Firms

As a lawyer or law firm, it’s essential to have a solid understanding of accounting principles and best practices. However, even the most experienced professionals can make mistakes that can negatively impact their business. In this blog post, we’ll explore some of the most common accounting mistakes that lawyers and law firms make and provide tips on how to avoid them.

From not tracking time accurately to not staying up-to-date on tax laws and regulations, these mistakes can lead to billing errors, lost revenue, compliance issues, and financial penalties. By being aware of these mistakes and taking steps to avoid them, you can protect your business and ensure its long-term success.

Mistake #1: Not Tracking Time Accurately

One of the most common mistakes that lawyers and law firms make is not tracking time accurately. This can lead to billing errors and lost revenue, as well as difficulties in determining how much time is being spent on different cases and clients. Some lawyers believe that it is not necessary to track time because they work on a contingent fee. However, even those lawyers know that, when it comes to fee disputes, time records are key.

To avoid this mistake, it’s essential to implement a system for tracking time that is accurate and easy to use. One way to do this is by using time-tracking software (such as Clio, Harvest, etc.), which allows you to track time spent on different tasks and projects, as well as generate detailed reports and invoices.

There are many popular time tracking systems for lawyers. Some examples (in no particular order) include:

Bill4Time: A web-based time tracking and billing software that allows lawyers to track time, create invoices and manage clients and projects.
LexPI: A software specific to New York personal injury attorneys.
Clio: A cloud-based practice management software that includes time tracking, invoicing, and case management.
Toggl: A simple time tracking software that allows lawyers to track time spent on different tasks and clients.
TimeSolv: A web-based time tracking and billing software that allows lawyers to track time, create invoices, and manage clients and projects.
TimeCamp: A time tracking software that allows lawyers to track time, generate detailed reports, and create invoices.
Harvest: A time tracking software that allows lawyers to track time, generate invoices and reports, and manage projects and clients.

Additionally, setting reminders for yourself or your team to log time regularly can help ensure that time tracking is being done consistently. Likewise, it is helpful to double check the time entries and make sure they are accurate before sending invoices. This may help to catch any errors and ensure that clients are being billed correctly.

Failing to accurately track time can lead to billing errors and lost revenue. To avoid this mistake, implement a system for tracking time that is accurate and easy to use, such as time-tracking software, setting reminders, and double-checking time entries before sending invoices.

Mistake #2: Not Keeping Accurate Financial Records

Another common mistake that lawyers and law firms make is not keeping accurate financial records. Inaccurate financial records can lead to compliance issues, difficulties in budgeting and forecasting, and financial mismanagement. The Attorney Grievance Committees closely scrutinize law firm financial records.

It is therefore important to implement for New York lawyers and law firms a system for keeping accurate financial records. One way to do this is by using an external accounting company such as Law Ledgers that allows you to easily track income and expenses, generate financial statements, and manage accounts payable and receivable. Additionally, hiring a professional accounting firm to review your financial records and provide guidance on best practices can help ensure that your records are accurate and in compliance with applicable laws and regulations.

It is also important to follow a regular schedule for reconciling bank accounts and credit cards. This may help to ensure that all transactions are accounted for and that your financial records are accurate.

In addition, keeping backup records of all financial transactions is also a good practice that can help to avoid any discrepancies and compliance issues.

In sum, not keeping accurate financial records can lead to ethics issues, difficulties in budgeting and forecasting, and financial mismanagement. To avoid this mistake, implement a system for keeping accurate financial records, such as using accounting software, hiring a professional accountant, having a regular schedule for reconciling bank accounts and credit cards, and keeping backup records of all financial transactions.

Mistake #3: Not Staying Up-to-Date on Tax Laws and Regulations

Another common mistake that lawyers and law firms make is not staying up-to-date on tax laws and regulations. Not staying current on tax laws and regulations can lead to compliance issues and financial penalties.

To avoid this mistake, it is important to follow industry newsletters and alerts that provide updates on tax laws and regulations. For example, the IRS offers a Quick Alerts, which is a feature that allows taxpayers to receive text message or email notifications when the IRS issues important information, such as updates on scam alerts, changes to tax laws, or scheduled maintenance on their online services.

Consulting with a tax professional or using external accountants such as Law Ledgers can significantly help to ensure that you are aware of any changes that may affect your business and that you are in compliance with all relevant rules, laws and regulations, including Rule 1.15.

Another tip to avoid this mistake is to have a process in place for reviewing and updating your business’s tax strategies, such as reviewing your deductions and credits and identifying areas where you may be able to reduce your tax liability. In addition, it’s also important to check for the tax laws and regulations of the specific state where your law firm is operating, as they may differ from the federal tax laws.

Failing to stay up-to-date on tax laws and regulations can lead to ethics issues and financial penalties. To avoid this mistake, it’s important to follow industry news, consulting with tax professionals, have a process in place for reviewing and updating your business’s tax strategies, and follow the specific state tax laws.

Mistake #4: Not Outsourcing Accounting Services

Another common mistake that lawyers and law firms make is not outsourcing accounting services. Not outsourcing accounting services can lead to inefficiencies and missed opportunities. Outsourcing accounting services can allow you to focus on your core business and leave the accounting to the experts:

Outsourcing accounting services can save you time and money by allowing you to focus on your core business and leaving the accounting to the experts.
Outsourcing can help you to avoid the hassle of hiring and training an internal accounting team, and can provide access to specialized knowledge and expertise.
Outsourcing accounting services can also provide you with a more accurate and efficient accounting process, and it can help you to reduce errors and improve your financial reporting.
Outsourcing accounting services can also help you to stay compliant with laws and regulations, as the service providers are usually up-to-date with the latest accounting standards and tax laws.
Outsourcing accounting services can also provide you with a higher level of scalability and flexibility, as you can adjust the services you receive based on your business needs.

The greatest benefit of outsourcing accounting services is that it can provide you access to specialized knowledge and expertise in areas such as taxes, budgeting and forecasting, and financial planning.

Please note that the information provided on this website is for general informational purposes only and is not intended as legal or tax advice. The information is subject to change, and it is important to consult a specialist before making any decisions. Law Ledgers provides accounting services to New York lawyers and law firms, including escrow protection, tax advice and bookkeeping administration. Contact us today for personalized support.