Younger law firms just starting out on their journey find themselves in a critical position. In an industry which rests on consistency, you need to know that the practices you’re putting into place are ones which will carry you through this early period of growth.
This extends to every aspect of how you manage your firm, from effective staff hiring and retention to the way you network, build contacts and develop your professional sphere.
Bodies like the Solicitors Regulation Authority are a good source of professional knowledge but, ultimately, best practice is up to you. Failure to get it right from the start means wasted time later on as you backtrack to revise the way you handle different aspects of the business.
One thing that sticks out in this part of the process is accounting. Depending on the area of law in which you specialise, accounting and its associated regulations might not be intimately familiar to you. Even if it is your area, the difference between knowing the law and putting best practice into place is quite a gap.
Accounting for small law firms: What you need to know
As a small firm setting procedures in place, you’ll need to decide between the two principal methods of tracking your finances. These are accrual and cash accounting respectively.
The former, accrual accounting, tracks income pending along with income that has been physically received. It can include:
- Work in progress
- Accounts receivable.
Cash accounting, meanwhile, tracks only finances which have already entered or exited your account. Most smaller firms use this method as your main expenses at this point are going to be things like staff, premises, insurance and other costs which remain relatively fixed and easy to plan for.
That being said, firms tend to transition towards accrual accounting as they grow, in order to better forecast their finances over a more extended period. Therefore it’s important to lay the foundations for this transition later on.
Your accounting system will also need to be as detailed as possible. In most cases, all time spent working on behalf of a client will count as billable time, so in the interests of transparency you need to be able to account for exactly what you’re doing over this time.
In addition to this, you should take care to maintain full and separate records of the following:
- Used to account for contact time with clients.
- Accounts receivable. Funds billed for and not yet collected.
- Client ledgers. A detailed breakdown of serviced provided for each client.
- Case time records. Time spent on each individual case.
- Cases in progress. Ongoing work, at various stages.
- Overall summaries of time spent. A record of all billable time and expenses.
While on the surface there would appear to be some level of crossover between these, it pays to keep the records separate to facilitate more easily accessing in-depth specifics when needed.
There is a strong temptation among smaller firms to maintain one central set of records, updated periodically (even annually) from a sub-section of various notes and spreadsheets.
This method is not recommended. It stands to reason that entering data into an interim set of spreadsheets, to be transferred into your central system at a given date or time, suffers from various problems:
- Data can be lost, forgotten or inaccurately recorded.
- The task of entering data into your system is effectively doubled.
- Likewise, the resources required to maintain two systems make this method ineffective.
We cannot advocate strongly enough taking the time to select one centralised system of accounting which is easy to access and detailed enough to keep all your records in one place.
Accounting software for lawyers
If one theme remains constant when it comes to accountancy for law firms of any size, it’s that you need to be recording a broad spectrum of rapidly changing information in such a way as to make it easily accessible and in great detail.
As a smaller firm, you’re in a good position insomuch as the choices you make now can be made with an eye towards sustainable growth. Investing in the right accountancy software package will both handle your immediate needs and also make future expansions as painless as possible as your client base and administrative requirements grow.
Sage One Accounting has been developed for businesses like yours. It scales up with your firm, allowing you to easily track as many clients, staff and cases as you need, all with the same easy interface.
Being confident that you won’t need to switch accountancy software years down the line means no time wasted in painstakingly re-entering old data into a new system. With add-ons like Sage Payroll and Sage Pay, it allows you to grow in any direction you require, still using the same familiar interface for maximum efficiency.
It also stays updated. We understand that keeping track of your specialist area of law is challenge enough without also needing to be an expert in accountancy legislation. Sage One software helps you stay fully compliant and lets you make the most of 24/7 support from our dedicated team.
Above all, it lets you take full advantage of the power of cloud storage. Wherever you are, on any compatible device and for any client, you can easily access the same in-depth data or simply give a digestible overview to your clients.
All of the best elements of cloud storage are backed up by our commitment to world-class data security. When you’re dealing with sensitive information for a range of clients as well as your own staff you need to know you can trust your software provider.
Sage One software is design-led, meaning it’s intuitive and easy to use. Time spent training staff to use software is time wasted when you could opt for a software package that balances powerful functionality with an accessible, welcoming ethos.
Accounts for the legal profession by Sage One
Operating within the legal profession is about building trust; it’s a goal that’s hard won and easily lost. Whether you’re tracking your own finances and making your staff feel secure or providing all the answers to your clients as and when they need, Sage One Accounting lets you build that trust.
Are you ready? Start your free trial today.