How to Choose the Right Law Firm Accounting Partner
As the owner of a successful law firm, you’re busy.
You’re busy providing mentorship to staff, drafting legal documents, and optimizing each client’s experience – all while ensuring your company runs smoothly behind the scenes.
So, when do you have time for the accounting part of your business?
As a law firm owner, it’s essential to understand the critical components of both bookkeeping and accounting. However, in addition to not having time, Law Firm Accounting 101 likely wasn’t available in law school.
This article will review the basics of accounting and bookkeeping, what to look for in an excellent legal accountant and bookkeeper, and how technology can make your law firm’s accounting process much more manageable.
Do Lawyers Need Accounting?
In short, yes.
Lawyers rely on a wide range of financial data to effectively manage their firms and provide their clients the best possible legal services.
Therefore, it’s common for lawyers to partner with an accounting service that can help them analyze and interpret this data and support budgeting and planning. Additionally, specific rules under The Law Society of Alberta, including trust account reporting, require accountant participation to be in accordance.
Startup reports and annual trust reporting require a CPA sign-off.
While some small law firms may be able to handle their business’s accounting and financial aspects independently, most find that working with an accountant saves time and helps them make informed decisions. Access to expert accounting services can be particularly beneficial for law firms dealing with more complex or high-volume cases.
Bookkeeping vs. Accounting
When it comes to managing the financial aspects of a law firm, there are two key disciplines that play essential roles: bookkeeping and accounting.
While bookkeeping and accounting involve tasks such as tracking income and expenses, maintaining records, and preparing financial reports, they differ in focus, scope, and level of detail.
Bookkeeping, which typically involves more straightforward and routine day-to-day tasks, is primarily concerned with recording transactions and ensuring that all financial records are accurate and up-to-date. Often, bookkeepers work part-time or freelance, and licensure is not required.
What to Look for in a Legal Bookkeeper
When choosing a bookkeeper to handle your law firm’s finances, there are several key factors that you should look for.
- Law Firm Experience
Legal bookkeepers should have a great deal of bookkeeping experience in law. Without it, it can be difficult for an individual to properly handle the complex financial transactions common in the legal industry, such as trust account transactions, disbursements and billing.
- Software Familiarity
Law firms use an array of tools to manage flows of financial data; therefore, a keen understanding of software is pivotal for any successful legal bookkeeper. Many legal clients now expect bookkeepers to use specialized software, which may be necessary for tracking specific cases or complying with certain regulatory requirements.
- Social Proof
Successful law firm bookkeepers with a proven track record have social proof. They will be able to present positive testimonials that demonstrate their ability to build trust and provide reassurance that they are reputable professionals.
Unlike bookkeepers, accountants who provide professional accounting services in Calgary are typically members of the CPA (Chartered Professional Accountants of Alberta.)
Accounting goes beyond the scope of bookkeeping by providing a deeper analysis of financial data, complete with insights into factors such as profitability and business performance.
Without good technology and proper support from a CPA, these can be a considerable burden to compile. And noncompliance can end your law practice.
As a law firm, you likely have plenty of annual reports and filings that must be completed promptly. One of the most important – is the trust report. The law Society requires this document of Alberta, and it’s essential to ensure it’s done correctly. That’s where CPAs come in. CPAs are also involved in other aspects of a business, such as ensuring that legal documents are filed correctly.
What to Look for in a Legal Accountant
If you’re looking to hire an accountant for your law firm, there are a range of considerations to factor in when making your decisions.
- Law Firm Experience
Similar to legal bookkeepers, law firms should work with professional accountants with significant experience in law. An accountant who has worked within the field will have valuable insights into the mechanics of legal organizations and how they operate from both a financial and an administrative perspective. An excellent legal firm accountant will also be well-versed in commonly used legal structures that lawyers use to optimize their tax efficiency.
- Understands Rules & Regulations
One of the most important criteria when it comes to choosing a legal accounting partner is that they understand the rules and regulations of law firm accounting. A law accountant with a comprehensive grasp of specific accounting principles as they relate to law supports their ability to provide accurate and reliable financial data, assess legal and tax implications, and ensure ethics compliance.
Because law firms rely on their accountants to keep track of financial data and provide critical strategic feedback, law firm accountants need to be well-versed in providing detailed advisory to help firms stay competitive and maintain their reputation for excellence. Law firm accountants are instrumental in helping law firms make intelligent financing decisions by analyzing past performance and forecasting future trends. Furthermore, law firm owners can benefit significantly from insights and advice from a skilled accountant regarding investments, tax matters, and legal costs.
Using Tech for Accounting
In today’s digital age, many law firms are turning to technology, such as Xero and Clio, to streamline and improve their accounting processes. Law firms can gain real-time insights into critical financial information, reduce administrative burdens, and automate routine tasks by utilizing cloud-based software, automated systems, and data analytics platforms.
As we mentioned above, staying compliant with Trust Reporting is critical. Without good technology and proper support from a CPA, these can be a huge burden to compile. Non-compliance can end your law practice.
GURU by Achen Henderson is a virtual accounting and bookkeeping software designed to alleviate law firms of accounting and bookkeeping tasks so they can devote their time to growing their business. Our cloud-based application allows law firms to access seamless tax services, real-time data, and unlimited HUMAN support from anywhere, at any time. You can learn more about how we help law firms by visiting our legal page.
With the right tools, owners can successfully navigate the challenges of law firm accounting. Whether you’re just starting or looking for ways to optimize existing operations, using technology can help you manage your law firm more efficiently.
Focus on What’s Important
Accounting is a necessary part of your business, as it safeguards your growth and keeps you compliant with ethics rules. But, even if you aren’t well-versed in law firm accounting or don’t have the time, you don’t have to feel overwhelmed.
Working with a law firm accounting partner can help your firm be more effective and ensure that money isn’t left on the table. Implementing virtual accounting software will streamline operations and optimize efficiencies by minimizing errors, decreasing workload, and maintaining compliance.