So You Want to Be a Legal Bookkeeper? Here’s What You Need to Know

So you, so you be a legal bookkeeper. I'm gonna tell you some of the tips and things you need to know to actually sit in that role. So if you're a bookkeeper and you're thinking about branching out to legal accounting, you get your first legal law firm client and you've, you've really just landed your first attorney and you're a little unsure. Welcome. Legal bookkeeping isn't about just tracking dollars and cents, although a lot of what you do on a day-to-day basis with other clients is very similar. But I wanna break down really what a bookkeeper does bookkeeper does, and then what makes legal bookkeeping unique. So obviously, if you've been doing bookkeeping for a while, you know, bookkeeping is a lot about categorizing income and expenses. You're in that bank feed, you're downloading those transactions, you're reconciling. So you're making sure everything is accurate because the bank feed is not always accurate. You're reconciling the accounts to ensure accuracy to the bank, and you're managing a chart of accounts or the categories that all these transactions go into. And then you're generating financial reports, profit and loss, balance sheet, things like that. And so you probably are proficient in QuickBooks Online, which really is the gold standard in the industry for a GL or an accounting software, but also there's Xero. So you could also know Xero and it works just as well, especially depending on the size of the client. But if you're working with a law firm, you're going to need to know a few things because legal bookkeeping can be unique. So one of the things you're going to run into right off the bat, it's going to be trust accounting, IOLTA accounts, special bank accounts. Law firms manage money in trust accounts and they have to be handled with meticulous care. You can't have mistakes in trust accounting. You have to track every deposit and every disbursement. You have to reconcile 3 different records each month, the trust bank account, the trust client ledgers. You need to know the amount of money. You've got a total balance in the bank account. You need to know underneath that, the accordion of what are all the different bank accounts, sub-bank accounts for your clients, and, and how much is left over in each account that equals that total. And then you have to make sure the trust liability aligns. So what you've got on the books there, you have to avoid any commingling of funds. So the attorney can't be using trust account funds for anything but the trust accounts, for paying themselves for some of the time that they've, you know, the work that they've done, the legal fees, legal work that they've done. And that's a timing thing. They collect the retainer, the retainer sits in the liability account, it doesn't get applied to the— Okay. Invoice, the open invoice until the work has been performed. So there's a lot about timing when it comes to that. They're gonna be paying expenses upfront for the clients that they call the mini loans to the client. That's an advanced client cost, which is an asset account. If your client's paying for the, their client's court fees, filing costs, expert witnesses, any of those type of expenses, those are advanced client costs. Those are direct costs. So they pay for them on their client's behalf. With their operating funds, and then they end up getting reimbursed out of the trust account to pay them back. So it's a wash, it's a clearing. Uh, there's also— you're going to need to understand how legal billing works. Know that there's legal billing software like Clio or LeanLaw or other ones, and there's PracticePanther, there's MyCase. I mean, there's tons of them— Cosmolex. And then you're going to see that the law firms use that to track time, so that's going to be what they bill back to their clients, as well as some of those expenses will get funnel through there. So when they do their billing, they're able to pull them into the bill and get reimbursed. So knowing that there's going to be a few systems in place, you want to make sure that they're integrated properly. And we see a lot of times that they're not. So it's important for— to have a proper integration so that the things are in the legal billing software land in the right categories in QuickBooks. The invoice is pushed over seamlessly. So that's another thing you want to understand how that works. LeanLaw actually has a two-way sync, so it's very easy to navigate and stay on top of. So also you're gonna find that a lot of law firms are partnerships and how the partnerships look on the equity account are important. And you have to really track the money coming out of the law firm, money coming in, but then also the money going out to the partner, or it's gonna be showing as a draw or a distribution. You want to make sure that that's proper and expensed properly on the books. So it's gonna sit in that balance sheet. So it's no effect on the profit and loss. There may be profit allocations that you're gonna run into. So understanding the chart of accounts and the firm's tax structure is really gonna pay off. That's the one thing I can tell you is you need to know that when you start to work with attorneys. So few tools in this article that I share that really help us work with law firm clients. And obviously QuickBooks Online Plus or Advanced are essential to help clients track everything that they need to track in QuickBooks. There's Write Tool, which we really like. It helps, it's a time saver. It's a free browser extension that you can use, but there's also— you can pay for one. We pay for it because it does a whole bunch of things. It's really worth the money. You want to ask for accountant logins for their payroll program. If they're not using QuickBooks Online Payroll, maybe Gusto or ADP, you want to ask for the accountant login so you have that ability to look those things up and also connect them and connect the banking— connect the payroll to QuickBooks so it pushes that journal entry in. A lot of times we see that the client's not doing that, and then they dump it all into either a clearing account. It's very messy. So you So you wanna make sure that they're doing that properly. And know that to elevate yourself to be a really good legal bookkeeper, you really need to know the language. So as you speak with your attorney, you're talking about retainers and use the terms that they use. They use the word billing. And if you think of billing in QuickBooks, it's always, it's really vendor bills. But in the world of attorneys, billing is billing their client, it's invoicing their client. So know that that's kind of a tricky word that kind of can get you a little bit confused in the beginning. You wanna get certified, get certified in your software, make sure you know how to use the software. It's a time saver if you've got that knowledge under your belt. You want to align the books with the tax return. So the last good tax return, you wanna align the books so that they align perfectly with the records. And you want to be proactive with questions. So if it seems unusual, you get an unusual transaction, take the time to ask, don't just plunk it somewhere and hope for the best. You wanna make sure you have a good line of communication, whether that's through Lycio or Slack or however you, set up your messaging with your client. So legal bookkeeping is not just a bunch of fancy words, and it's not just like, "Oh, what the heck does that mean?" It's actually very specialized. It's a high-trust role that you're going to provide to your client to help support the firm to stay compliant. So really important job, and really also help them be profitable. So know that if you're brand new to this niche or you're just looking to sharpen your skills with maybe one attorney client, it's not a bad idea to learn the language, and then have the ability to take the time to do the work properly, to help build a stronger client relationship with your client and be more confident in the workflows. If you have any questions or comments, please feel free to reach out and good luck with your new client. Bye now. Bye.