Your bookkeeping is FUBAR. That’s military slang term that means, more or less, screwed up. Your bookkeeping is a mess.

How do I know? Because I’m increasingly doing consulting for small- and medium-sized law firms, and the first thing I ask for when we get started is basic financial data. I ask first for a profit and loss statement.

Firm after firm, especially solos, can’t give me an up-to-date P&L. In situation after situation, I’m immediately realizing that the accounting system (can I call it a “system”?) is a disaster.

Are You Making These Accounting Mistakes?

It goes way beyond issues like making choices between accrual-based and cash-based systems. It goes way beyond how you’re accounting for bad debts or other unusual expenses.

Your system is messed up in ways like this:

• Paid invoices are in a pile with unpaid invoices. No one knows what’s paid and what isn’t.
• Nothing has been sent to the bookkeeper in a year.
• The pile of invoices has never been entered in QuickBooks or any other accounting system.
• Checks are hidden in the pile and haven’t been deposited.
• The pile is hidden in a drawer so you don’t have to think about it.
• Some of the undeposited checks are expired.
• Client bills—not yet sent—are in a folder underneath the pile.
• The copier people won’t come service the machine because their invoice is 90 days overdue.
• Clients have never been sent an accounting of their trust account funds.
• Reports? There are none.
• And on, and on, and on.

I’d expect to see this mess in practices that are losing money. I’m not surprised when an attorney is in denial about going broke and hides the records from himself so he doesn’t have to face the issue. That’s pretty normal but not terribly productive behavior.

I’m seeing this mess in firms that are making money. I’m seeing it in profitable law practices. That’s crazy. You can’t afford this kind of mess. You need to get the accounting situation under control.

More significantly, it’s not possible to run a business without basic financial data. It’s like playing a game without knowing the score. How can you tell how you’re doing if you don’t have the numbers? It’s not good enough to run your business based on whether there are funds in your bank account. You need to know what’s happening.

There is no business function more easily outsourced than bookkeeping and accounting. Historically, most law practices have used an outside accountant to prepare tax returns. Many firms use bookkeeping services. I’ve outsourced the entire function for years, and you can too. If you’re playing the game without knowing the score, it’s time to pack up your receipts and checks and everything else and deliver them to someone who can help.