Why Mid-Sized Law Firms Should Outsource their Legal Accounting


This is a question a potential law firm client asks me with a file requiring cleanup.  So what is legal accounting as opposed to regular accounting?  Legal accounting is keeping accurate records of all financial transactions related to your law firm. It includes recording expenses, income, payroll, taxes, and other financial information affecting your bottom line. Legal accounting aims to ensure that you accurately report your finances so that you can make informed decisions about how to spend your money. The mid-market is where the majority of law firms operate. They range from 5 to 50 attorneys. These firms often use outside services like ours to help manage their expenses.

Reasons for Outsourcing

Outsourcing provides a method where your sensitive data is managed offsite. You will get a fully trained finance team proficient in law firm accounting and the nuances surrounding compliance and trust accounting. We can also help you with your human resource needs, assist you with workflow issues within the firm, and determine the proper benefits for your staff - among other things. Additionally, there are services you may have yet to consider.

Do you ever worry about spending too much money at your law firm without seeing results? These are the areas where we can help:

  • "Is your trust accounting balanced in three ways?"
  • Do you worry about paying your staff and having enough cash flow to do so?
  • Do you have a lot of open, uncollected accounts receivable?

Trust Compliance

A three-way reconciliation is a requirement in some states, and it is always a best practice to know that your records are in good order. It is an attorney's fiduciary duty is to know who belongs to every penny in that IOLTA or trust bank account. Could you provide that detail in a random audit? 

Checking if your company is compliant can be quickly done by looking at your bank account balance on your balance sheet and comparing them to your trust liability account. If the numbers match, then you're on the right track.

Advanced Client Costs

Another way to check if everything is running smoothly is by seeing if advanced client costs are tracked correctly. Often, clients are unaware of what's happening behind the scenes, as it's not their focus. You are too busy practicing law!  But it's essential for you, as the business owner, to know all aspects of what's going on with your finances to ensure everything is running well.

Year-end Cleanup

It's that time of year when you want to clean your books well. Review the open balances and trust accounts. Are there closed matters that still have small amounts owed to the client? Do you have old outstanding checks that still need to clear that belong to clients that should be replaced or returned to the state as unclaimed funds?

Uncleared Checks

Suppose an uncleared transaction appears on more than one reconciliation report. In that case, the law firm should reach out to the individual who received the payment to determine why it has yet to be deposited. It is the responsibility of the law firm to investigate and address any uncleared funds promptly.

There are many possible reasons why a transaction may still need to be completed. The check may have been lost in the mail, or the individual may be holding onto it.

Unclaimed Funds

Law firms looking to return unclaimed funds to their rightful owner need to show that they did everything in their power to find the client or get in touch with them. Making an effort includes trying to locate a new address for them. After the law firm has done everything to find the client, it can treat the funds as unclaimed.

The firm must follow state bar association guidelines on where to send the funds. Each state has different laws regarding how long the firm must hold the funds before they can be considered unclaimed and dispersed. It's imperative to check the rules and regulations for your specific bar association to determine the correct steps.

Equity Section

As I mentioned last month, it's essential to have your partner equity section properly stated on the balance sheet for your law firm. If your company is a partnership, but you must show the accounts correctly in the equity section, your books will only partially reflect your business.

Did you tie your books to the tax return from last year? That's another important thing to consider. Accounting is important because you don't want to pay more taxes than you should. A good, clean record will stand up to an audit.


These are all areas an excellent outsourced accounting firm can handle for you. As a mid-sized law firm, it can sometimes take work to justify the cost of bringing on an outside firm to do the legal accounting. However, outsourcing your legal accounting to a third party is a great way to free up your internal resources and afford the cost of adding a legal accountant to your team. Your mid-sized law firm will be able to focus on its strategic growth while maintaining accurate and thorough books.

If you are interested in learning more about our services, feel free to reach out. We are just a phone call or a contact form away. You can even book and schedule time on my zoom meeting calendar. I'd love to talk to you.