Running a successful law firm takes more than delivering results in the courtroom.  Behind the scenes, keeping your legal trust accounting compliant is non-negotiable, but it’s not the whole picture.

Many growing practices put all their energy into managing client trust accounts, only to overlook other financial blind spots that can cause cash flow stress, tax headaches, or even compliance risks down the track. 

If your trust account is "in check" but you’re not paying attention to these wider red flags, your practice could be more exposed than you realise. 

Let’s explore some of the common pitfalls and how you can get ahead of them. 

1. Over-Reliance on Trust Balances

When a trust account looks healthy, it’s easy to feel that the firm itself is in a strong position. But the money in trust isn’t yours - it belongs to your clients. 

The red flag: Using trust balances as a mental indicator of firm stability. 
 
The impact: Partners may underestimate their actual working capital needs, leading to underinvestment in operations or sudden cash shortages when bills fall due. 

Pro tip: Always separate trust reporting from practice financial reporting. Your P&L and cash flow statements should be the primary tools guiding your firm’s financial decisions - not the trust ledger. 

2. Cash Flow Crunch Despite Healthy Billings

Legal practices often have strong billings but weak collections. Extended payment terms, slow debtor management, and peaks and troughs in case outcomes can cause significant cash flow issues. 

The red flag: Struggling to cover wages, tax instalments, or supplier invoices even when billings are high. 
 
The impact: Partners end up drawing less, injecting personal funds, or taking on unnecessary short-term debt. 

Pro tip: Implement robust debtor management processes and forecast cash flow monthly. Consider adopting technology that automates invoice reminders and integrates with your practice management system.

3. Tax & GST Traps for Growing Practices 

Tax compliance for law firms can get complicated quickly. From GST treatment of disbursements to PAYG obligations on contractor payments, it’s easy to overlook key requirements. 

The red flag: Treating all client disbursements as GST-free or failing to account correctly for reimbursed expenses. 
 
The impact: Unexpected ATO liabilities, amended assessments, and potential penalties. 

Pro tip: Have a tax professional review your treatment of disbursements, payroll obligations, and superannuation regularly. As your practice grows, so does the complexity of your tax footprint. 

4. Misaligned Reporting with Business Growth

As practices expand, many continue using the same basic reporting they started with. Unfortunately, this can leave blind spots in partner performance, practice group profitability, and resource allocation. 

The red flag: Relying solely on bank balances or trust reconciliations to gauge firm health. 
 
The impact: Missed opportunities for smarter staffing, investment in technology, or strategic growth decisions. 

Pro tip: Upgrade your reporting to include KPIs such as billable hours per fee earner, matter profitability, and lock-up days. These insights help ensure your financial decisions are proactive, not reactive. 

5. Inadequate Risk & Compliance Reviews

Trust account compliance is heavily regulated, but many firms don’t extend the same rigour to other areas of their accounting and finance processes. 

The red flag: Internal reviews limited to annual trust account audits. 
 
The impact: Exposure to fraud, misappropriation, or compliance breaches in other areas of firm operations. 

Pro tip: Conduct periodic internal audits beyond the trust account. Review payroll, partner draws, expense authorisations, and cybersecurity around your financial systems. 

How to Stay Ahead 

Keeping your legal trust accounting compliant is a baseline requirement. But the real test of a healthy practice lies in the systems, reporting, and financial discipline that support long-term stability. 

At Rubiix Business Accountants, we work with law firms of all sizes to: 

• Ensure airtight compliance with trust account rules 

• Strengthen cash flow management and tax planning 

• Build reporting frameworks that support growth and profitability 

• Provide strategic advice so partners can focus on practising law - not firefighting finances

Final Words

If your trust account is in check, that’s great, but don’t stop there. Watch for the blind spots that could hold your practice back. A proactive accounting partner can help you spot these red flags early and build a more resilient, future-ready firm. 

Is your law firm ready to move beyond compliance and into confident growth? 
Contact Rubiix Business Accountants today to book a consultation with our professional services team. 

Disclaimer: The information in this article is general in nature and does not constitute legal or medical advice. Please consult a qualified adviser for personalised guidance.