Law firm accounting is quite different from accounting for other types of businesses. Law firms have unique needs that require specialized knowledge and a professional accountant to keep details in order. Discussed below are some of the reasons why law firms need an effective accountant to handle their finances.
Need an accounting system that can deal with different types of billing?
In a law firm, not all clients are billed in the same way. Some clients may be billed hourly, while others may be charged a flat rate retainer, and some may even pay based on the task completed for the client. The law firm accounting practices need to be flexible and able to keep up with the varying types of billing agreements that may arise between the attorney and their clients.
Is there an effective time tracking mechanism?
A huge challenge for accountants within law firm accounting is tracking the time allocation for attorneys. To prevent under or over charging a client’s bill, there needs to be an accurate and effective time tracking tool for lawyers to input how they are spending their time so it can be billed correctly. This requires the proper software, infrastructure, and communication between attorneys and accounting services.
Law firms are complex
In a law firm, money is used for many different purposes, and it all needs to be tracked: money coming in from clients, money needing to be paid out to clients, money paid out for firm expenses, and for firm employees. It is very important that all of this is kept in order and is reconciled regularly to avoid financial confusion. This is where a professional accountant can be a valuable asset; they have the most up-to-date infrastructure and knowledge of law firm accounting practices.
Accountants can keep track of payments
Lawyers want to do what they do best: practice law. They want to be paid for their services, but don’t want or need to deal with the worry over unpaid client bills. Law firm accounting can track receivables and can help a law firm track and obtain money that is owed to an attorney for his or her services.
Accountants help at tax time
Your law firm wants the most knowledgeable people on your side come tax time. You want law firm accounting professionals who are up to date on current tax laws who will be able to get you the maximum tax benefits and deductions that you are entitled to.
Many accounting firms will offer profitability improvement analysis to their legal clients. It can give accurate and specific information on the strengths and weaknesses of your law firm’s accounting and billing practices. This can result in increased revenue for the firm.
There are complexities in law firm accounting that require a professional. Variances in billing types, time tracking, multiple accounts, and business analysis needs all require an astute accountant to manage their intricacies. A skilled accounting firm can help to increase profits and tax deductions through accurate record keeping and business analysis.
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