Law firms need a CFO who understands legal billing cycles and practice area profitability analysis. Organizing time-tracking data from multiple lawyers with inconsistent tracking methods can quickly become unmanageable. Some law firm accounting platforms offer legal time tracking features to centralize data and help streamline the process. Our 2025 Legal Industry Report found that 37% of law firms use trust accounting software.

Rinse, Repeat, Regret: Three Financial Errors That Law Firm Owners Make Over and Over Again

Crain’s Grand Rapids Business launched in 2023, bringing together MiBiz, the Grand Rapids Business Journal and Crain Communications to create the top source of business news, analysis and information in West Michigan. Visit your state’s website to find out the requirements for your business. You get some protections from the kind of business structure you choose. A limited liability company (LLC) or a corporation status can protect your personal property from lawsuits.

• The software must also support compliance with trust accounting rules and firm-specific billing policies.
• However, payment is based on the effort expended rather than on the results achieved.
• Smart CFOs create flexible cash flow projections that help plan for different scenarios and prepare for unexpected events.
• When SBA considers revising size standards, it issues a notice of proposed rules.

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However, according to general guidelines from the American Bar Association Model Rule on Financial Recordkeeping, lawyers must keep detailed financial records for a minimum of five years after their work with a client ends. This includes client ledgers, retainer agreements, expense receipts, bank statements, and tax-related documents. Trust accounts hold funds belonging to clients or third parties (e.g., settlement funds, court fees). Scrupulous records of all trust account transactions, such as deposits, withdrawals, and interest earned, are essential to ensure client funds are handled appropriately and not commingled with the firm’s operational funds. These are formal contracts between the law firm and the client, outlining the scope of legal services to be provided, fee arrangements, and other terms of engagement. Without a solid financial system in place, managing client funds, tracking expenses, and staying compliant with legal and ethical obligations can quickly become overwhelming.

203 Fixed-price contracts with economic price adjustment.

With built-in trust accounting, expense tracking, and reporting tools, it reduces the risk of errors and helps firms stay on top of their finances without getting lost in spreadsheets. The best virtual CFO services have direct experience in the legal sector. Your provider should know trust accounting (IOLTA/IOLA), client fund segregation, and state bar compliance requirements.

• Plus, it integrates with legal practice management tools, which makes it easier to keep billing and accounting connected.
• Law firms use Bill4Time’s legal billing software because it combines time tracking, invoicing, trust accounting, and client communications.
• Let’s break down the top accounting software for small law firms and what makes them worth considering.
• Remote CFO services give law firms a competitive edge in a field where many overlook financial expertise.
• They also compare multiple periods to learn about performance patterns and see how financial decisions affect liquidity.
• With real-time financial insights and multi-user access, Xero helps firms stay on top of cash flow without getting bogged down in spreadsheets.

Clio Accounting is designed specifically for law firms, which makes it easier to manage trust accounting, billing, and financial reporting while staying compliant. Remote CFO services provide law firms with strategic financial expertise without the overhead of a full-time executive, addressing unique challenges like trust accounting and unpredictable billing cycles. Most lawyers use time and billing software for lawyers, like Bill4Time, that supports real-time tracking, matter-based billing, and professional invoicing. The software must also support compliance with trust accounting rules and firm-specific billing policies. The ideal option is one designed specifically for legal professionals—like MyLegalSoftware.

However, declining realization percentages have cut into law firm profits. If clients resist further rate hikes, firms may need to find alternative solutions — such as improving operational efficiency and cutting costs — to maintain future profitability. Passive time tracking, in particular, is a worthwhile tool—especially for small law firms that typically need to wear multiple hats. Our 2025 Legal Industry Report found that 24% use passive time-tracking Bookkeeping for Law Firms platforms. Of those who use these tools, 45% reported saving up to 10 hours per month.

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• We can help you select the optimal pricing model for specialty practices and develop competitive billing rates.
• Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.
• An in-house bookkeeper works directly within your firm, offering immediate support and a personal touch.
• These accounts hold money belonging to clients or third parties, separate from the law firm’s own finances.
• Between managing trust accounts and staying compliant with industry regulations, standard bookkeeping software doesn’t always cut it.

This method provides a more accurate picture of the firm’s financial position and performance over time. However, it requires more complex bookkeeping, as firms must track accounts receivable and payable, which can make cash flow management more challenging. Cash basis accounting is a method where income is recorded when payments are received, and expenses are recorded when they’re paid. This approach is straightforward, making it easier for small law firms to manage cash flow and track available funds. However, it may not provide an accurate long-term financial picture since it doesn’t account for outstanding invoices or upcoming expenses.

How To Choose the Best Accounting Software for Your Small Law Firm

Commingling is when a law firm mixes client funds with firm funds, either intentionally or by mistake. It’s a serious ethical violation that can result in bar sanctions, fines, and even disbarment. To avoid unintentional commingling, you must keep meticulous records, separate trust accounts, and regularly reconcile accounts. Each state bar has its own specific regulations, and you must be thoroughly familiar with and adhere to these rules. Your firm may be subject to random or scheduled audits to ensure compliance.

• (E) An opportunity for a postaward debriefing in accordance with paragraph (b)(6) of this section.
• You can follow announcements about updating size standards from the Office of Size Standards.
• As you expand, you’ll tackle increasingly complex cases and a diverse client base—all while navigating the intricacies of a growing law practice.
• A well-planned budget outlines your expected income and expenses over a set period, helping you stay on track with spending, manage cash flow, and identify areas for cost-cutting or investment.
• Get found online, build client relationships, and generate business with Rocket Matter’s growth and engagement solutions.
• Smart budgeting helps law firms stay financially accountable and find where revenue might be leaking.

Financial forecasting uses historical data to predict future revenue, expenses, and cash flow. This helps you anticipate slow periods, plan for hiring, and make informed business decisions. For instance, if your projections show a dip in revenue next quarter, you can get ahead of the problem by focusing on bringing in more clients, adjusting spending, or setting aside extra cash now. Accurate accounting for law firms requires the use of a specialist who understands the operational challenges you face and the opportunities that lie ahead. Security is another vital consideration when selecting accounting software.