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Do-it-yourself accounting: sole practitioners and small-firm lawyers must also be businesspeople, and basic accounting is a key skill.

Article Excerpt
Running your small law practice as a business is essential for success. Standard business practices like good accounting can often seem less important than pursuing cases that could right an injustice. Yet managing money well is fundamental to good business practice--especially given the monetary risks lawyers regularly undertake.

We get paid only if we succeed, we advance all expenses that we cannot write off on our taxes, and we carry those expenses--sometimes several hundred thousand dollars in a complex products or medical malpractice case--for years without charging clients any interest. If we lose a case, our expenses probably will not be paid back. And to make matters worse, many federal and state lawmakers want to cap our clients' recovery, limit our fees, and close the courthouse doors by preempting certain claims. Some states have already placed these hurdles in our path. A person running any other type of business would avoid every part of this scenario.

What makes law office accounting different from that of other businesses is that if you do not think ahead about how to control and separate your practice's and your clients' money--that is, the fine points of trust, or escrow, accounting--you can be suspended, disbarred, or sent to jail. As a result, small-practice lawyers often must master both the law and bookkeeping.

Several commercial software programs, including QuickBooks and Quicken, can help you handle multiple accounts and code items for tax purposes. QuickBooks, which I use, provides a general list of expense and income accounts that you can customize. It can create a payroll, track invoices and expenses, and record hours spent on each case.

QuickBooks can also create a report that lists each disbursement separately, including filing fees and fees for obtaining medical records. The program provides a record of any check you send out, and it can track expenses paid by credit card: You simply post the amount of each month's statement in the program.

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