Law Firm Close Checklist for Bookkeepers

2025, it should be closed. If it's not closed, and let's face it, a lot of our clients come to us, they're new to us in January, nothing's been done in their file, and we're sitting there trying to get everything ready for them, for the tax professional. And for the most part, let's say like maybe 90% of the clients actually end up filing extension and doing their taxes later. That's more typical. I do it. I don't— there's no need to rush it to get it ready for March 15th. It doesn't get you any brownie points or any discounts. But if we're looking at getting our— the firms that we're working with closed, the law firms that we have, close properly. I'm just going to go over like a law firm checklist for you today and help you keep your clients' books compliant and avoid penalties and really get tax season ready. Because it's tax season, and by now you've probably given files, most of your files, to the tax professional. It's always interesting to me because you don't even learn that you put all this burden on yourself to get everything ready by February 10th, for example. That's my usual typical day that I like to get them all ready for my clients and get them to the tax professional. And then you find out that the tax person had no intention of ever getting that file done and ready and going through on time, and you really busted your butt and worked weekends and late nights for nothing. So having a good relationship with the tax professional for all of your clients— that'll probably be multiple people— is really critical for this. And We wanna make sure our clients stay compliant, that they file the extension return so that they're in line to have the extension and they're not having to actually file on the 15th of March. And then also that they have paid all their taxes. Just because you filed an extension, that's just an extension to delay the filing of the tax return. It doesn't delay the payments that are due. So make sure that you know that as we go through this because it's That's something that I think a lot of times clients think, oh, I'll just pay it later, and you really can't. It has to be paid. So this guide will help keep the law firm finances solid and really make that fourth quarter of 2025— you should have been doing this all year long. So we're going to really work towards getting that last quarter dialed in and making sure everything looks good. So remember, with legal bookkeeping compliance, it's not optional. It's the foundation of your law firm client's integrity in the firm. So if you skip this, it risks fines, bar sanctions, or worse. So we don't want that to happen to our client for sure. It's something that they're always worried about. So know that you have to really look into keeping the bank accounts balanced and reconciled, and that you are keeping in tune with all of these tasks that have to be done. You don't fall behind. I always say the cobbler has no shoes. Guess whose books usually fall behind? My own, because I'm making sure my clients' books are in line. The first thing you wanna do, we're gonna assume that you've got everything done, everything's reconciled, you've got the 3-way reconciliation, so we know have compliance with the trust. Now you wanna do a visual look at the Financial statements, profit and loss. Start there, look at it, compare it to last year's, 'cause anything will jump up out at you if you see huge swings or differences. And maybe you'll see a swing or a difference and you are going to know that swing or difference, why that happened. But look at it, look for liquidity, look for stability, look at all the records there. When you look at it, look and analyze the revenue, see if the revenue's increased from last year. Maybe they added more attorneys, so maybe it's gone up. Maybe the expenses have gone up. Maybe there's a huge amount more in travel that wasn't there the year before, and that's the reason why maybe the profit is down. Maybe they hired more people, but it didn't reflect as much in the revenue, so maybe that's a reason why their profit is down. Look at all those and dissect that as you go. Don't forget about cash flow. You wanna really take a look, good look at cash flow looking into the next year, into this year that we're in right now. But the documents that are really gonna give you that big picture, you're gonna look at balance sheet, compare that to last year. Look and see, have the balances changed, how much they've changed over the time. You're gonna see that any additional accounts that weren't there last year, you're gonna notice that. Start to take a good look. Maybe there was a new loan that popped up. If you have a payroll account with QuickBooks Payroll, you're gonna see a new account on there. If you haven't noticed it already, that's a tax account where they hold the funds. It's an asset. You're gonna see that on the books that was made by your payroll provider. It's probably gonna have a balance. That's the balance that Intuit's holding.. It doesn't ever really seem to go to zero. I noticed on the files, but there's always gonna be money in it. When they run a payroll, they put it up there and then they pay it and it gets released. So they're actually holding the funds. The funds have left your checkbook. So know that's a fact. When you look at that, you wanna look at the trust accounts, make them a priority. It's a big one. This is the heart of legal bookkeeping. So look at the client trust accounts. They hold sacred client funds. Look at the little individual trust ledgers. Make sure that nothing stands out. There's no negative balances. Hopefully that balances. If it doesn't balance, you want to really target in why it's not balanced, and it could be something really small or simple, like why our fees came out of the wrong bank account. They came out of IOLTA and nobody's reimbursed it. Try to get on top of that to get that corrected for— obviously will be this year because you can't reimburse back to December. Make sure that every change or complex transaction or anything that sticks out has good notes. Like maybe you fix something along the way. Maybe it's as simple as an error where the client took their distribution out of the trust account. That's horrible. That's commingling. And they hurried up to fix, to put it back. You noticed it, you tell 'em, hey, you took your distribution outta the wrong account. They repay it. And then you write notes in there as to what happened and that they were notified and this happened right away. That's gonna help you in an audit. Down the line, couple years go by and they audit that period, you're never going to remember it if it's— time has gone by like that. So you want to make sure you have a lot of notes. Obviously, I mentioned it earlier, regular reconciliations are going to save you. You don't want to be doing a whole year. We do a lot of cleanups. Sometimes we are doing the whole year. It's pretty tedious. And you just want to make sure that you have those regular monthly reconciliations, even if the bar only requires them quarterly. There's a few bar associations that are like that. If they're using an outside tool like Clio, you want to make sure that aligns with the little ledgers that you have, make sure they match, which is where your 3-way bank reconciliation comes from. Now, next thing you want you to look at is the billable hours and take a look at that inside the Clio and just see what's sitting out there for WIP. You want to also look at your advanced client cost and see if there's anything in there. You want to bring that to the client, say, hey, is there anything here? Maybe a matter closed, you know, show it by the client or the matter and say, is there anything here that's not going to happen? That's just sitting up in the advanced client cost account that you need to move down to billable expenses unrecovered. That sometimes gets missed, and that's an expense to the firm. They paid the money out and they're never going to get the money back. You want to bring those down for them. As part of compliance, take a look at what's not cleared the bank, figure out what happened, what's wrong. If they send checks out and the client didn't receive them, maybe you got to make phone calls, or the law firm staff needs to make calls. Reach out to these people and maybe resend a check. If it's stale, dated, you want to also maybe clean up that file. And if there's small amounts, talk to the client, say maybe we should send this back. Even if it's 53 cents, you have to send it back to the person. If it's in their trust accounts, their money, so you need to release those funds. Now those are the things that we really like to clean up. Any stale checks that haven't cleared the bank for years. We see this, years have gone by and they haven't cleared. Address those, whether you send out a new check because you have more details on maybe a client moved and they never forwarded their address, or maybe the client just didn't cash it or they lost the check. So you wanna start to make effort to clean up those hanging accounts and hanging figures that are there, the hanging checks that haven't cleared the bank. If there's deposits that haven't cleared, why? You need to investigate why that has happened as well. Sometimes it's just a duplicate entry and it's never gonna clear as it's duplicate and you need to void that out. Again, lots of notes, lots of notes. You cannot go wrong with lots of notes there. You wanna take a look at payroll, make sure the payroll, if they have a payroll, matches the tax returns that were filed by the tax product that they're using, whether it's Gusto, ADP, QuickBooks. You want to ensure that all ties back and any pennies you wanna make adjustments on for that. Also, if you have last year's tax return, make sure you tie the books to tax so that way you're sitting in a good place for when the tax return for this year and you can make those corrections. Make sure the equity section is stated properly. I see this a lot of times on files that come to us. It's not stated the way it should be. Make sure the equity section is stated in a manner that aligns with their business entity type. That's another thing that we see sometimes. So make proactive fixes on these things and get the records really ready so the tax person can come in and take a look at it. So it's really important too. You have— if you have Clio, that's a powerful tool. Make sure it's being used to its fullest extent when working with the client. Make sure that everything's been invoiced, that you're done with the invoicing for 2025 and you're looking forward. If you're using LeanLaw, same thing. Make sure that you really work towards all the invoicing is done. If anything's backdated, really work with the team. And then you start to focus once you've got all that done and you've worked with the tax professional and assets too. I don't wanna forget the assets. So Any assets that were purchased in the prior year, you want to make sure that you have all the paperwork and documentation so the tax person can do the depreciation if that's something that's going to be happening on the file. Any loans, make sure the loans are reconciled. Advanced client costs should be reconciled. So it's really the majority of things that you need to be looking at when you start to look at closing the books on a file. And it's important because you want to ensure compliance. You don't want anything happening with the client's books. You don't want any chance of an audit. And if there is an audit, which can happen, randomly, you have a way to tie that back and give them the documents they need to prove that it balances. You want it correct for the tax person. If you've been working with a tax person for multiple years, it's a best practice to make sure, because they all ask for different things, but most of them ask for the same thing, but some of them ask for different items. So you want to have either a folder for them or minimally an SOP so that when you work with them next year, you're like, here you go. Like maybe they like their general ledger report, which is sometimes hard to get out of QuickBooks. Maybe you like it in a certain way. I actually change the way the default one comes out of QuickBooks and I make it less noisy, nice and clear. And you want to download that. You want to get those records for the entire year, especially once this is all closed, tax returns done. You want to print all that out, PDF it, stick it in a cloud-based storage system so you have that in case something happens. You wanna be able to have those records available to you. And I think really these are the important things you need to take a look at. So as you close your year-end 2025, make sure everything's reconciled, get it ready for tax prep, have that checklist for yourself to make sure that you really keep it tight and neat for yourself. Obviously keeping up with the work. And we get tired, we get overwhelmed in this time of the year. Mm-hmm. So try to take care of yourself as well. I always say if you're getting a client at the end of January and they're really hard pressed to get that records fixed and cleaned up by March, don't put that on yourself. Sometimes they don't realize that yes, if it's gonna be ready for the person in March, the tax person needs it ahead of that too. You can't be handing it on March 14th and expect the tax person to file the tax return. I think that sometimes gets lost in the messaging. They'll come to us and they complain that the tax person doesn't talk to them. When do they try to talk to them? Right before the tax deadline. You can't do that. So this is where we come in. We're actually that bridge, that person that can help them, guide them. Obviously we don't give tax advice, but at least we can be that conduit between them and the tax professional. I think that's one of the best advisory roles that a good bookkeeping firm can take. So I hope this helps. Thank you so much for watching, and here's to a very compliant and prosperous 2026. Take care. Bye now. Bye.