Breaking Into Legal Bookkeeping: What Every Bookkeeper Should Know

This week we're going to discuss Breaking into Legal Bookkeeping: What Every Bookkeeper Should Know. So I'm gonna make the assumption that maybe you just got your first attorney client, or maybe you're really looking to find attorney clients. This month's gonna really be focused on that if you're brand new to this industry. And I hope to share some insights and tips. There's a lot of val— valuable information here in the blog. You just have to do a little searching, or you can take our course, but we've definitely got some information here that will help you hit the ground running and come out looking like a superstar. Start. So the role of the bookkeeper is pretty simple. You have to record and categorize transactions. And if you've been doing this for a while in different industries, or if you're a generalist like I was for many years, that's something that can happen. And you have to enter the transactions, you have to categorize them properly, you have to reconcile. Basically everything we do is to help the client get ready to be able to use a create a tax return on the information we provide. That's the basic job of a bookkeeper. I think in today's world, we're gonna step beyond that and really help our clients with firm growth and making a decision whether they should hire someone. It's gonna come to a higher level, especially with AI stepping in and taking away some of our mundane tasks. So reconciling accounts, you wanna do that to catch discrepancies. It's really important when you work with lawyers because they have trust accounting, which is another whole animal. Mm-hmm. You have to manage the chart of accounts. The generic one that populates off of QuickBooks is terrible for lawyers. You should be able to tweak that. And I know I have an article somewhere that will give you— just type chart of accounts in the search bar, and I've got a link to one that we use. And also you wanna produce some good financial reports, cuz how else are they gonna know how their firm is doing? A lot of them fly blind. They actually look at what they have left over in the checking account, and that's how they figure how they're doing. If they've got a lot of money there, they got $100 grand there, great, they're doing great. They got $25, they're not doing so great. That's not a way to run a business for sure. No matter what the business, but for certainly for a law firm. So where our service stands apart, if you're gonna really focus narrowly on working with attorneys, where do we stand apart? We need to know all the ethical and regulatory guidelines for our attorney-client, wherever they happen to practice law. So it can vary by state or. Mm-hmm. Jurisdiction. So we need to know mostly about that. We need to know a lot about how each state, what the requirements are for the handling the client funds, the trust funds, the retainers, the money that they collect upfront. There's strict rules and guidance there as well. So with trust accounting, the most important thing is you gotta play by the rules. You have to track every penny going in and out. There's no using reconciliation discrepancy account to wipe it away. Even if it's a penny, we have to figure out what the penny is. Every single penny counts. You have to reconcile 3 sets of records. So you have to get the bank statement, reconcile it against the bank account inside of QuickBooks. And you also have to reconcile that against if they're using Clio or LeanLaw or whatever the platform is that they're using it, that third leg where you're tracking all the customer information, that also has to bank out to those numbers. Everything has to align. If it doesn't align, there's a problem. And that's— we see that a lot, especially if they're using— most people use Clio, and you might see that the Clio balances are completely different than the balances in QuickBooks. QuickBooks might be balanced and it might reconcile out, but Clio's not been maintained or even connected to the books, which that's a whole nother argument that I could get into with you with why you want to connect the two. You also have to track advanced client costs. You have to know what they are. A lot of generic bookkeepers might not know that there's an account called advanced client cost. It's the Client costs that the attorney pays for out of their operating on behalf of the client. Their hard costs and soft costs are fixed, direct and indirect, that they might be paying out of pocket, that when they later charge the client and get the money back, the IRS wants to see these up in the advanced client cost account. Some attorneys will be diligent about that. You need to know what client they're for so you can reconcile that account. Mm-hmm. And sometimes they're not so good at it, and you might be better off with billable expenses and billable income. You really want to work with their tax professionals to see if they're doing the billable expense and billable income method. You really want to look at that and say, okay, how is this presented? Because sometimes, especially if they're a personal injury firm, they might be outlaying a lot of money for a client upfront, and it's coming out of their operating account. They may even lose the case. Then what? Yeah. They never recoup the money. So you really have to track that and know what you're doing in that respect. I think I've done some articles on specific practice areas. You might wanna look at that as well. Then you might find there's some partnership-specific accounting. There might be accounting per partner that you have to do, how each partner's doing in the firm. Maybe they break that out and have some magical calculation at the end of the year to divvy out the profit. You need to ask about that. You need to say, how's the partner compensation calculated? It's an important question to know. And how are the contributions handled? How are the withdrawals handled? What type of firm are they? What type of entity are they? All of those things are important. And then of course, the tools of the trade are very simple. QuickBooks Online Advanced, you're gonna need that because you're gonna max out of that chart of accounts. Or Xero, you can use Xero as well. LeanLaw or Gusto, Clio, those are two really good products that the client would use to do their billing that gives them the professional look of the billing as well as syncs into QuickBooks. Tool is one that I like to use. It's a, —every one of my staff has to use it because it does so many things, especially to clean up files. It's amazing and it speeds up any repetitive data entry. Then there's also payroll. You want to look at Gusto Payroll or Paychex or ADP. Those are all things you need to be proficient in because your client might be using these products and you need to know how to present that on the books, connect it, and backcode it so it can come into the file nicely. And then you want to have an account for any unknown deposits that come into the file, which would be a suspense deposit. And then you want the Ask My Accountant account. We renamed that to be Ask/Needs Help so that way it can go both ways. If the client had a problem with the transaction, they could put it in there, which very rarely happens, or we put it in there to bring up the conversation with the client monthly to say, we have these transactions that came in the bank feed, we can't determine where they go. And then you ask, you don't guess, you always ask. And then you want to build confidence and credibility with your clients. So learn their lingo. They don't say, "I'm gonna invoice a client." They say they're gonna bill a client. Those are important things. Get certified in the products, get certified in QuickBooks, get certified in Clio. Those are important things too. Get certified in Gusto. All important things. Cross-check their records with their tax return. Their tax return sometimes lays out law out as an outlier, and it's never brought into the picture. You have to ask for it. But you wanna tie the books into the tax return so that everything stays copacetic. So every year things get updated. Sometimes the tax person makes adjustments, they never tell us. So you wanna be able to put those in so that everything looks presentable in case there was an audit, everything kind of ties back. It's really important. And then stay curious. When something doesn't add up or something coming through the bank feed doesn't make sense, ask. It can be something so innocuous, but it could be something that maybe their credit card got hacked or anything like that. You don't wanna guess. Use some form of communication with your client. Maybe they wanna communicate with you through their Clio, or maybe you communicate with them through Licio, or however, that's how we do it. Sometimes we do it through our practice management tool, Carbon, but make sure it's a secure place that you can transfer data, ask questions, give them reports, make it somewhere that makes sense. So becoming a legal bookkeeper means stepping into a role that has some high demands. It demands accuracy, it demands accountability and specific knowledge. It's gonna take you some back work to get there. You want it done right. It's more than just balancing books. It's helping law firms stay compliant, which is a pretty big role. And it may— it's important to make sure that they're efficient and that their firm is profitable. So if you're ready to grow into this niche, I highly recommend Renda. It was probably the best decision I've ever made in my business career. Legal bookkeeping integrations, all of that. It's important to know. Learn what you're, what you're working in doing. Always stay focused on growing and getting more proficient in your products that you use. And I guarantee you it will be a successful bookkeeping firm in your space and you'll have happy clients. And that's all we ask for. So on that note, we'll see you all next week. Bye now. Bye.