Set Up Your New Law Firm the Right Way

Use this as a real-world setup list when you’re launching your practice. Before the phones start ringing and the caseload gets heavy, these are the financial pieces you want fully in place so your firm isn’t held together by guesswork, personal cards, and half-finished spreadsheets.

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• Choose the right entity (in CA: PC/APC or LLP, not an LLC)

  • In California, you can’t just form a generic LLC to practice law. Most firms end up as either a Professional Corporation (PC/APC) or a Registered LLP, and that choice affects how you’re taxed, how partners are paid, and how ownership is structured. Solos and very small firms often lean toward a PC/APC because it fits well with corporate-style payroll and potential S-corp tax planning (per your CPA). Multi-partner firms frequently prefer an LLP because it’s built for partners sharing profits and management. We don’t give legal or tax advice on entity choice, but once you decide with your attorney/CPA, we’ll design your bookkeeping around it.

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•  File Articles / registrations with the state

  • Once you’ve chosen an entity, it has to actually exist on paper. That means filing Articles of Incorporation for a PC/APC or LLP registration with the Secretary of State and complying with any State Bar requirements for your firm type. Until those filings are done, you’re effectively just a person doing business, not a separate firm. Getting this done early helps with opening bank accounts, signing leases, and keeping your personal and firm obligations separate. It also makes your bookkeeping cleaner, because we can tie every transaction to a real legal entity.

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•  Get your EIN

  • Your Employer Identification Number (EIN) is the firm’s SSN. You’ll need it for bank accounts, tax filings, payroll setup, and most vendor onboarding. Using your personal SSN everywhere is messy and, frankly, not ideal from a privacy/professionalism standpoint. Getting an EIN is usually quick, and we prefer to have it in place before we open accounts or connect any systems. From a bookkeeping angle, the EIN is the anchor that keeps all your financial accounts clearly tied to the firm, not to you personally.

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•  Open your banking stack (operating, IOLTA, tax, and credit card)

  • At minimum, we want three accounts: an operating checking account for firm expenses and income, an IOLTA/client trust account for client funds, and a business credit card for firm purchases. Ideally, you also open a dedicated tax savings account where you routinely move a percentage of revenue to cover future tax bills. This separation helps avoid accidental commingling and gives us clean lines in your books: we can see where revenue lands, how client funds move, and how much is earmarked for taxes. It also makes it easier to answer the question, “Can I actually afford to pay myself more?”

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•  Draft fee agreement language for retainers and trust funds

  • Your engagement letters should explain, in plain language, what happens to client money. That includes when retainers are earned, how and when funds move from trust to operating, how you handle refunds and disputes, and how chargebacks are treated. If your contracts say one thing and your bookkeeping shows something else, you’re asking for trouble with both clients and the state bar. We want the way money moves through your IOLTA and operating accounts to line up with what you’ve promised on paper. Once that’s clear, we can build your bookkeeping rules to follow it every month.

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•  Choose a payment processor that respects trust rules (LawPay, Clio Payments, etc.)

  • Payment processing is a common place for trust violations to sneak in. You want a processor that can direct funds appropriately to trust vs operating and keep fees and chargebacks from quietly draining your IOLTA balance. Many firms use law-specific tools like LawPay, or the integrated offerings inside their practice management systems, Clio Payments, MyCase Payments, PracticePanther Pay, etc. Those can work very well, if they’re configured correctly: trust deposits going to the trust account, earned fees to operating, processing fees pulled from operating (not trust), and refunds handled in a way that doesn’t create shortages. On the bookkeeping side, we’ll set clear rules for how deposits, fees, and refunds are recorded so your IOLTA reconciliations still tie out perfectly. Getting this right early prevents a lot of quiet (and expensive) cleanup work later.

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•  Get a QuickBooks Online subscription (and configure it for a law firm)

  • QuickBooks Online is usually the backbone of your financial reporting, but out-of-the-box it’s not “law-firm ready.” We’ll set up a law-specific chart of accounts that includes client trust liability, advanced client costs (as an asset), settlement clearing, fee income, referral fees, and owner-related accounts tailored to your entity type. We’ll also define how retainers, settlements, and reimbursements should be recorded so that every transaction has a consistent home. The goal is that your Profit & Loss and Balance Sheet actually reflect how a law firm operates, not just a generic small business.

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•  Capture business spending from personal accounts

  • Almost every new attorney starts out by swiping a personal card or paying things from a personal checking account before the firm accounts are fully set up. We don’t want to lose that history. We’ll pull statements and identify anything that is truly a firm expense, software, bar dues, CLEs, equipment, initial marketing, and categorize it properly as either owner contributions, reimbursable expenses, or startup costs. Cleaning this up early means your first-year books accurately show what it really took to get the firm off the ground. It also helps your CPA capture all legitimate deductions.

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•  Pick a basic practice management / time & billing system (and connect its payments correctly)

  • Even if you start simple, you need a home for matters, time entries, invoices, and collections. That might be a dedicated practice management system like Clio, MyCase, FileVine, etc., many of which now include built-in payment processing (Clio Payments, MyCase Payments, and similar). Those in-house tools are great if they’re set up to respect trust rules and mapped cleanly into QuickBooks. We’ll decide how data flows: which system is the “source of truth” for billing, how payments are split between trust and operating, and how that activity lands in QBO (direct integration, exported reports, or monthly summarized entries). The key is that your billing system, your payment processor, and your accounting system all tell the same story.

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•  Document your trust accounting SOP & 3-way reconciliation routine

  • Trust accounting can’t live in your head; it needs a written process. We’ll outline how client funds are deposited, how disbursements are approved, how transfers to operating are triggered, and who records each step. Every month, we perform a 3-way reconciliation: comparing the bank balance, the trust ledger in QuickBooks, and the total of all individual client ledgers. When something doesn’t match, the SOP should say who investigates it and by when. This is the difference between hoping your trust account is fine and being able to prove it’s fine.

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•  Choose a payroll provider

  • Even if you’re not hiring staff on day one, it’s smart to set up your state payroll tax accounts and choose a payroll provider early. If your CPA wants you on payroll (for S-corp reasons, for example), we’ll need a system to handle your own W-2 compensation. And when you do bring on an assistant, paralegal, or associate, you don’t want to spend weeks scrambling through state registration portals. From a bookkeeping perspective, clean payroll flows make your labor costs, payroll taxes, and benefits very easy to track and analyze. Some of the popular choices in providerse would be ADP, Gusto and Rippling.

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•  Create a receipt and expense policy

  • We want a simple, firm-wide rule: all firm expenses go through firm accounts, and there’s a consistent way to capture receipts. That might mean a receipt app (like Dext or similar), or at least a shared drive where PDFs and photos are uploaded and labeled. This protects you in an audit, helps your CPA defend deductions, and saves you from digging through email and glove boxes in April. It also makes the month-end close smoother, because we’re not guessing what a mystery charge was for six weeks later.

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•  Build a simple month-end close checklist

  • A month-end close doesn’t have to be complicated, but it does need to exist. Each month, we download bank and card statements, reconcile operating, trust, and credit cards, complete your IOLTA 3-way reconciliation, and generate your Profit & Loss and Balance Sheet. Then someone, usually you, reviews and signs off, even if that’s just an email confirmation. That routine turns your books into a management tool instead of a tax-time chore, and it keeps you ready in case a lender, partner, or bar auditor ever asks for records.

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Starting a firm is a big enough lift without also trying to moonlight as your own bookkeeper, trust accountant, and systems architect. You can absolutely work through this checklist on your own if you want to, but if you’d rather get it built right the first time and maintained every month, that’s exactly what Chief Bookkeeping Officer is for.

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If you’re a new or soon-to-launch firm and you want clean books, compliant IOLTA reconciliations, and a financial setup that won’t need to be “fixed” a year from now, reach out. We’ll walk through where you are today, map your entity, banking, payments, and bookkeeping against this checklist, and give you a clear proposal for taking the whole money side of the firm off your plate.