BooksBoss logo
HomeFree ReviewBlog
Top 5 Bookkeeping Mistakes Made By Small Law Firms

Top 5 Bookkeeping Mistakes Made By Small Law Firms

Bookkeeping for law firms isn’t just about tracking expenses. It’s about trust, ethics, and compliance.


In this short guide, I’ll show you five common bookkeeping mistakes made by small law firms, why they matter, and how to avoid them.


Here are the top 5 mistakes we’ll cover:

  1. Commingling Trust and Operating Funds

  2. Not Performing Monthly Trust Reconciliations

  3. Misclassifying Owner Draws and Distributions

  4. DIY Bookkeeping Without Legal Accounting Knowledge

  5. Ignoring 1099 Reporting Requirements



1. Commingling Trust & Operating Funds

What it is:

Depositing client trust funds into the firm's operating account, or paying firm expenses from the trust account.

Why it matters:

This violates legal ethics rules and can trigger bar complaints, fines, or even disbarment. Even if it was unintentional.

How to avoid it:

Maintain a separate trust account (IOLTA) and ensure three-way reconciliation is performed monthly.

2. Not Performing Monthly Trust Reconciliations

What it is:

Failing to match client ledgers, trust bank balances, and liability accounts monthly.

Why it matters:

Without reconciliation, you may not realize if client funds are missing or overdrawn.

How to avoid it:

Use tools like Clio or LawPay and reconcile all three ledgers every month, documenting the process.


3. Misclassifying Owner Draws and Distributions

What it is:

Recording owner withdrawals as business expenses (e.g., meals or travel).

Why it matters:

This misstates net profit and can cause problems during tax time or with compliance.

How to avoid it:

Clearly separate owner draws, and ensure personal expenses are not run through the business.


4. DIY Bookkeeping Without Legal Accounting Knowledge

What it is:

Relying on generic bookkeeping help or software without understanding legal-specific rules.

Why it matters:

Legal bookkeeping has unique requirements like tracking retainers, fee splitting, and 1099s.

How to avoid it:

Work with a bookkeeper who understands law firm trust compliance and legal software integrations.


5. Ignoring 1099 Reporting Requirements

What it is:

Not properly tracking payments to vendors or contractors who require a 1099-NEC.

Why it matters:

Can result in IRS penalties or trigger audits.

How to avoid it:

Collect W-9s from vendors early and use QBO or another system to track 1099-eligible payments throughout the year.


Honorable Mentions

Confusing Profits with Cashflow

A healthy revenue month doesn’t always mean you have cash in the bank.


Missing Estimated Tax Payments

Forgetting quarterly taxes creates IRS penalties and stress.


Trying to Do Everything Alone

Bookkeeping can quickly too complex to manage along. Delegate early.


DIY vs. Professional Bookkeeping for Small Law Firms


Feature / Risk

Doing It Yourself

Hiring a Legal Bookkeeper
(like BooksBoss)

Trust Account Compliance

May overlook 3-way reconciliation or errors

Expert review ensures ethical compliance

Time Spent on Admin

5-10 hours / month or more

Near-zero time Just Review Reports

IRS & 1099 Readiness

Often filed late or incorrectly

Fully prepared and filed on time

Clio + QBO Sync Issues

Manual fixes and guesswork

Automated, monitored, and corrected regularly

Stress During Tax Season

High Scrambling to catch up or explain

Low Clean books CPA-ready

Opportunity Cost

"Free" in dollars, but expensive in time & risk

Predictable monthly fee with high ROI


Need Professional Guidance?


You’ve just seen the most common bookkeeping mistakes small law firms make. If you're ready for clarity, compliance, and peace of mind, BooksBoss can help.



Trusted by solo attorneys and small law firms.


BooksBoss logo
Give us a call
© BooksBoss LLC 2024. All rights reserved.

When you visit or interact with our sites, services or tools, we or our authorised service providers may use cookies for storing information to help provide you with a better, faster and safer experience and for marketing purposes.