Law Firm Bookkeeping

What PI Firms Need From a Bookkeeping Partner, And How We Answer

In today’s episode, we’re talking about one of the most anxiety-inducing topics in a personal injury law practice: bookkeeping and trust accounting. We all know that law firm accounting is its own world. But inside that world, personal injury sits in a category all by itself. The case volume is high, the IOLTA activity is constant, and the level of scrutiny from regulatory bodies has never been higher, especially after the Girardi fallout here in California.

And because of that, PI attorneys ask very specific, very important questions when they’re evaluating a bookkeeping partner. We’ve worked with PI firms for years, we understand settlement flow, and we understand exactly how costs and trust transactions need to be recorded.

Below are the questions we hear most often from PI attorneys, and how we answer each one as your bookkeeping team.

QUESTIONS and ANSWERS

1. Experience with IOLTA Trust Accounting

LAWYER:

Do you have experience with IOLTA trust accounting under the State Bar of California’s rules? I need you to understand how the client ledger, the trust register, and the bank statement tie out. If you can’t explain that clearly, we can’t go forward.

BOOKKEEPER:

Yes. We perform full three-way trust reconciliations every month, client ledgers (often from your case management system), trust liability accounts from your bookkeeping, and the IOLTA bank statements. All three must match to the penny or we stop and resolve the discrepancy immediately. Our process aligns directly with State Bar requirements, and we utilize the California Bar’s recommended Excel-based formatting.

2. Understanding Settlement Flow

LAWYER:

How familiar are you with how contingent settlements move through trust? I’m not asking you to “manage” my fees. I just need you to understand how settlement money flows and how to record it correctly.

BOOKKEEPER:

We know the settlement flow end-to-end. Deposits into trust, fees and reimbursable costs out, lien payments, client distributions, and the fee transfer to operating. We don’t decide amounts, that’s for you to determine, but we document every movement accurately.

3. Case Costs and the P&L

LAWYER:

My CPA says case costs shouldn’t hit my P&L. Do you understand what he means by that?

BOOKKEEPER:

Yes. Most PI case costs are advanced client costs recorded on the balance sheet. They remain there until reimbursed by settlement funds. They do not hit the P&L unless your CPA has a specific exception. By the nature of this accounting method, settlement income also doesn’t appear on the P&L — which sounds obvious, but you’d be surprised by what we’ve encountered in the past.

4. Recording Settlements and Disbursements

LAWYER:

When settlement checks come in and disbursements go out, what do you need from me to get everything recorded? These things move fast and the disbursement letter sometimes arrives before the deposit clears.

BOOKKEEPER:

We need the deposit information, which we usually see in real time in your bank, and the disbursement letter. We then match the settlement breakdown (fees, costs, liens, client payout) to the trust activity and record it accurately. That typically includes reducing the advanced cost account, increasing fee income, and zeroing out the client’s liability balance on the balance sheet.

5. Working With Your Practice Management System

LAWYER:

Can you work with whatever system I use to store disbursement sheets and cost info? Some firms track costs in their software. Most don’t.

BOOKKEEPER:

Yes, we adapt to your workflow. Whether disbursements are stored in your PMS, a shared drive, or emailed, we retrieve what we need. If you track costs in your PMS, we cross-reference it. If not, that’s perfectly fine.

6. Monthly Reconciliation of All Accounts

LAWYER:

Do you reconcile all bank accounts and credit cards monthly, even if some statements close mid-month?

BOOKKEEPER:

Yes. Trust is always reconciled monthly without exception. Operating accounts and credit cards are reconciled according to their actual statement dates, even if they fall mid-month. This is standard practice regardless of industry.

7. Being Ready for Tax Season and 1099s

LAWYER:

How do you keep my books ready for tax season and 1099 reporting? Sometimes you can’t fully close a month if you’re waiting on me for clarification.

BOOKKEEPER:

We close books monthly and flag any outstanding items awaiting clarification. Once you answer, we finalize immediately. For 1099s, we generally know the cadence contractors are paid, so once we identify final payments for the year, we begin drafting the first version of your 1099s. This gives us ample time to finalize in the first half of January. We also maintain dedicated P&L accounts for common 1099 recipients for clear visibility.

8. Clean Cost Data for Client Requests

LAWYER:

How do you keep my cost data clean in case a client asks for a full breakdown?

BOOKKEEPER:

We maintain detailed client cost ledgers within your books. Every subpoena, record request, filing fee, mailing fee, and expert cost is tracked clearly and tied to trust records. Even if your PMS doesn’t track costs, we record them. We just need tight collaboration with you or your case managers throughout the year to identify costs properly, especially when accounts also pay operational expenses.

9. Additional Reporting

LAWYER:

What reports do you provide beyond the basics? I’m not expecting CFO-level analysis. I just want to know what else I’ll get.

BOOKKEEPER:

We provide monthly P&L, balance sheet, and trust reconciliation reports. We keep reporting simple, accurate, and structured. We also maintain cost tracking, loans for clients, fiduciary balances, and — if applicable — class-based reporting for partners or locations.

10. Communication and Response Time

LAWYER:

What is your communication and response time policy? PI moves fast. Settlements move fast.

BOOKKEEPER:

Standard questions are answered the same or next business day. For deeper research, we acknowledge immediately and give a realistic timeline. Those longer cases are usually payroll, tax, or historical-data related. And for urgent questions, you can always call us directly.

11. Access and Confidentiality

LAWYER:

What access do you need, and how do you protect confidentiality? You don’t need my case documents — you just need financial access.

BOOKKEEPER:

Correct. We only need access to your banking portals, credit card statements, and PMS if cost data is stored there. We never access case files. All access is securely managed, and we help you set up restricted user permissions for our bookkeeping team. We only come to you for unclear transactions or missing documents such as disbursement letters.

12. Experience With Other PI Firms

LAWYER:

Do you work with other PI firms, and how do you handle confidentiality? I don’t need names. I just need assurance.

BOOKKEEPER:

We work with many PI firms but never disclose identities. Trust accounting is too sensitive. We demonstrate competence without naming clients.

13. Error Prevention and Internal Controls

LAWYER:

What internal controls do you use to prevent errors, especially in trust?

BOOKKEEPER:

Every trust reconciliation has a second reviewer. Client ledgers, trust balances, and bank statements are cross-verified. Any inconsistency is resolved before closing. Our team includes Chief Bookkeeping Officers with many years of IOLTA experience, which is rare in this industry.

14. Scaling With the Firm

LAWYER:

If I add attorneys or grow the firm, how does that affect the bookkeeping?

BOOKKEEPER:

Adding attorneys doesn’t change the bookkeeping structure by itself. But if you want class-based or partner-based reporting, every transaction must be categorized twice. We can support that, and we discuss scope changes transparently. As firms grow, increased transaction volume can also adjust scope, but we honor the contracts we are engaged in.

15. Handling Cleanup and Catch-Up Work

LAWYER:

Do you handle cleanup or catch-up work when onboarding?

BOOKKEEPER:

Yes, every engagement starts with cleanup. We tie out trust from day one, reconcile historical operating activity, and verify cost ledgers. You can’t build accurate books on messy data, so we begin by stabilizing the foundation. And as a note, the cleanup period always depends on the last date of accurate trust information. If trust was never reconciled, cleanup begins at the business inception date.

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If you’re a personal injury attorney evaluating a bookkeeping partner, or if you’re trying to understand what “good bookkeeping” actually looks like in a contingency-based practice, these questions are exactly where to start.

And if you want help with your books, cleanup, catch-up, ongoing trust accounting, or monthly financials, reach out to us at Chief Bookkeeping Officer.
Your books deserve accuracy. Your trust account deserves compliance. And you deserve support that understands how your practice actually works.