Accounting for the legal industry is often terrifying, even for experienced lawyers. You have spent hours sharpening your skills to become an expert lawyer but not learning accounting or bookkeeping. It’s obvious you, as a lawyer, will fear accounting tasks, and an accountant is a solution.
Accounting is the art of recording, classifying, summarising, and interpreting the financial information of an individual or a business entity.
Law firms also need accounting services. This guide depicts the need for accountants in the legal industry.
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Why are accountants important for legal firms?
Most people know accountants play the role of monetary interpreters or advisors in law firms. As lawyers are not accountants, they need an accounting department or a professional to handle the accounts.
However, the accounting and bookkeeping practices in the legal industry are different from regular financial accounting. Accountants for the legal industry must know a few inherent features of a law firm: client money, budgeting, bookkeeping, making financial statements, insurance coverage, billing and collections, taxes, and funding.
A small hole in a ship can drown the entire one; a little mistake in your accounting process can result in costly penalties. In the legal industry, maintaining compliance is essential. Failing to maintain the industry standards results in penalties and license cancellation for lawyers.
An accountant with experience in the industry can help you manage the inflow and outflow of money, keep proper records, analyse your data, look into your investments and ensure the firm’s overall growth.
Distinguish between bookkeeping and accounting in law firms
Bookkeeping and accounting are often used interchangeably but have different meanings and purposes. Both bookkeepers and accountants share the same goal of helping your firm to grow financially and succeed.
Bookkeeping
Bookkeeping refers to recording financial transactions and balancing the accounts for your legal firm. It takes place before any accounting task begins and is an essential administrative activity of the legal industry.
With clean and well-maintained books, you can track what money is coming in and leaving your firm. It ensures you have steady financial growth and accurate financial data for accountants.
Accounting
Accounting refers to analysing, interpreting and summarising the recorded financial data and preparing financial statements depending on them. They help in providing financial forecasts and capturing expenses.
Role of accountants in the legal industry
Financial data management
Numerous financial transactions occur within a law firm, including payroll expenditure of lawyers, client payments, etc. An accountant can help lawyers to maintain a proper record of every financial transaction in the firm and correctly record expenses and revenue.
Such a professional ensures your financial statements are accurately prepared at regular intervals and help you analyse new opportunities or risks in the system. They allow other employees to concentrate on core activities.
Offer financial advice
Accountants are financial advisors offering the best solutions on revenue and expenditure trends, future business planning, hiring outsourcing services, taking loans, making investments, hiring extra staff, etc. They help you deal with any irregularities and discrepancies related to finance.
Help in tax preparation
Like any other industry, a law firm is bound to pay taxes to HMRC, and this process gets hectic when you have loads of work to complete. A professional accountant understands your eligibility for tax deductions and helps you prepare accurate tax returns and submit them before the deadline.
Deal with third parties
An accountant forms a legal representative of your firm and deals with several external parties like banks for loans, tax authorities, etc. They can provide a better view of your finances and speak with the head of the institutions on your behalf. Having an experienced accountant on your back increases your chance of getting loans and grants sanctioned, dealing with investors, and so on.
Handling payroll
The legal industry working with staff needs to maintain a payroll system. An accountant has knowledge and skills in handling an organisation’s payroll and ensuring the employees receive timely payments. They use the latest technologies to automate the system and reduce the chances of errors in calculation and maintaining compliance.
Stay compliant
Every law firm must be responsible for staying compliant with its ethics and government regulations. The rules may vary in each jurisdiction, but there are a few standard rules regarding accounting for law firms. An accountant knows the rules and can help outline the key responsibilities for lawyers, like holding funds in trust, record keeping, etc.
What is the cost of hiring legal accountants?
Most legal accountants charge monthly; however, a few will charge you for our or on an individual service completion basis. The charges of an accountant depend majorly on the accountant’s capacity, the accounting companies’ location, business size, the volume of work to complete, the completion time scale, and the complexity of the work.
If you find the charges are high to afford a high-street accountant, you can outsource accounting tasks to firms or freelancers. They charge you only for their services, and you don’t pay any employer benefits like paid sick leave, overtime pay, etc.
Conclusion
Whenever you hire an accountant for the legal industry, never settle for anything that is at fault. Whether outsourcing to an accountant or hiring an in-house employee, you put a lot of trust in them to deal with your finances.
Are they qualified to deal with the legal industry? Do they have permission to perform accounting tasks?
You need to ask the candidate numerous such questions before hiring them. Also, ensure they have an excellent level of communication, and understanding of your existing software, are friendly and passionate, and have an interest in your industry.
Finding the right legal accountant can save you money and time and protect them from legal complications, tax investigations, and other accounting issues. Ask for references from your close ones and read the client’s review to work with the right accountant.
