Sarah Prevost explains why law firms need specialized bookkeepers, not generalists. Generic bookkeepers commonly mishandle trust-to-operating transfers, misrecord client costs, and skip trust compliance checks. Specialized bookkeepers deliver better profitability analysis and audit-ready records.
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This month I wanted to talk a little bit about having a law firm-specific bookkeeper as opposed to a generalist one that does work for any different type of firm. You will find differences. Obviously, the law firm bookkeeper, because they've got that extra level of knowledge base, they're most likely going to charge you a little bit more than you would get from the generalist, but not always every single time. But why would you want to hire someone who just does law firm books and doesn't do any other kind of accounting or bookkeeping work? Well, I can tell you personal experience. I spent a lot of time working with clients that come to us that have a lot of cleanups, and I've seen the work done by bookkeepers that just don't know the system. They try to apply the rules and processes of a regular company file to a law firm file, and They doesn't always equate. I just finished helping clean up a file where the bookkeeper used a lot of transfers. So every time the client transferred monies from the trust account to the operating account, they just booked in a transfer. Sounds logical. But if you look at what's happening behind the scenes, this is why, if you have the software, it does the work for you. It's going to be taking money out of Trust. So you're going to be taking money out of trust, which would be a credit to the bank account and a debit to the trust liability account on the side of the transaction where the money's leaving trust. And on the operating side, it's an invoice that you're receiving a payment for, and you're booking in the income on that side for the specific piece that the lawyer has earned. It could include also expenses. So having somebody who understands those cogs in the wheel and how it works is really critical to Having clean books and compliant books, which I see files that have a lot of transfers, or just the other day I had a file where the client grabbed the wrong checks and paid out some advanced client costs using the trust account. Sometimes that can happen in certain jurisdictions. You can use that, but in this particular one that was not the case, and the client actually owed that money back to the trust account because they used the wrong checking account. So that was caught. I also saw where the clients purchased some checks. So they like to handwrite checks. They purchased a check order. It came out of the trust account. You have to reimburse that. So that's not just a simple transfer of moving the money from operating to trust. You actually have to book in the back end of those transactions. You want to get— in the case of the check, checking order, you want to show that the money left the operating account and was booked into the check side of it. So you paid for office supplies, but on the other side of the transaction where it came out of trust, you want to show the money coming in and going out of— well, actually, the transfer would show the money coming out of operating into trust. But the money actually, when they use the trust fund money, you have to put that in some kind of a liability account so that the, the balance stays compliant until you move the funds. And then it's a matter of taking it out of that account and taking it out of the bank account on the other side of the transaction. So those are important key points when you're working with lawyers in trying to keep their books compliant. If you've ever had an audit with a client, you'll understand that it is seriously important to keep impeccable records. I think that that sometimes gets missed in the fact that somebody will just hire a generic bookkeeper thinking, well, they know how to do it. And, and they'll ask, did you reconcile the books? And the bookkeeper say, yeah, but books that are reconciled at the bank level does not mean that they're reconciled at the trust compliance level. And that's really where it's important. So you want to have a bookkeeper that if you get one that does multiple attorney files, they're going to give you a better analysis product back of what they see in a client's books when it comes to just analyzing the costs and the fees and They, they see lots of records that are very similar, similar industry. So they're able to pinpoint areas where you maybe find some growth. Maybe you can save some money. They're able to help you track profitability. They help you make data-driven decisions because we've got the data. We love the data. So it's important to hire somebody who has a level of financial insight that's critical for long-term success for the law firm itself. I think there's a lot of challenges when you hire just a generic bookkeeper. And with legal accounting, it's just even more critical, but given the compliance piece that, that we're looking for. So I hope this is helpful to help you understand that there's a lot behind some of these transactions, even advanced client costs. There's a lot of thought process by practice area, by different types of law, where you have to really analyze how it's going in, how it's going out. Are they using the advanced client cost account? Are they just booking it into expense and income? You know, the IRS wants to see it as advanced client costs if you're being reimbursed for it. But then also keeping track of it at the level of making sure that that money doesn't sit up there forever, that it gets reconciled so that there's anything that may be a matter you didn't win. If you're a PI attorney, a personal injury attorney, you can take that money down into the expense category, or any expense that maybe came in after a matter was closed, and you were like, yeah, I don't want to bother collecting on that. So those are things you want to think about. The other reasons that you might want to hire a specific accountant or bookkeeper that just does this kind of work for law firms is they probably have a better handle on the accounts receivable process. Some of the lawyers that we do the AR side of things, it's very, very intricate. There's a lot of working parts, there's a lot of steps, and we want to make sure that the client is happy with the way the AR and the AP is going. And of course, we use tools, we have tools for that, we have software that we Enable and to track things and make sure things are done in a good way, that nothing gets paid twice, and also that every cost in the— on the AP side is allocated to a client or matter if it's supposed to be. It's not overhead. Or on the AR side, we just want to keep a healthy cash flow. So we may analyze how you're doing your books now and how you're tracking your accounts receivable now, maybe even ask you to maybe switch it up a little bit, maybe bill not just on the 1st, but also on the 15th or the 20th, just to keep the money rolling in. And we also have some ideas of how we can get you to get collecting on some old debt. Obviously, reconciling the bank is a big part of what we do. We do a 3-way bank reconciliation, not just a traditional one. We get the financial reports ready for you. Our firm, we create a beautiful packet for that, and kind of based on— there's a general packet, but we also base it on what the client needs are, maybe what they're tracking for KPIs or things like that. We also can help with helping you choose software in your firm, what we see works best for other clients, and help you decide maybe on your billing platform what would be the best billing software for you. So I hope that's helpful. And if you have any questions, comments, please leave comments in Facebook or any of the social media sites where this article and video will be. And if you want to learn more, you can reach out to us. Thanks. Bye.
