Finding The Right Accountant For Your Law Firm
When looking for an accountant for your law firm it is important to consider the unique set of needs and regulations that law firms need to meet when it comes to accounting. Just any accountant simply won’t do. Think about it this way. If you are having chest pains you’re going to go see a doctor. You are however, going to call a cardiologist and not a podiatrist, because the cardiologist specializes in medical matters that concern your heart and not your feet. You need to take the same approach when choosing an accountant for your law firm. You need to find someone that specializes in legal accounting.
To make your search a little bit easier we have compiled a list of 10 questions that your accountant needs to be able to answer, otherwise you’ll be in the market for a new legal accountant.
10 Questions Every Legal Accountant Needs To Be Able To Answer
Question 1: Do you approach a legal client the same as you would a business in another industry?
If your accountant answers yes to this question they are not an acceptable option when it comes to choosing an accountant for your law firm. Legal accounting is an entirely different animal. Many things need to be taken into consideration or your firm could be disbarred. Which is exactly why your accountant needs to treat your firm much differently than he would any other client.
Question 2: Do you have any experience with client funds accounting?
It is common practice for law firms to use retainers with their clients. While the funds may be in the law firm’s possession, it doesn’t belong to them until it has been earned. Settlements that belong to the clients are also often handled by the law firm and it is extremely important that one client’s funds aren’t mixed with another client’s, or used to pay the firm’s expenses. If your balance sheets do not clearly distinguish client funds from your firm’s assets and revenue it could be a recipe for disaster, often resulting in severe ethics consequences.
Question 3: How do you track matter costs?
Matter costs are incurred when practicing law and then billed to clients. Not all matter costs are the same though, so it is important to track hard and soft matter costs separately for tax purposes.
Question 4: How do you differentiate between different types of matter costs?
Matter cost accounting can be tricky to say the least. While some matter costs are billed to clients, soft matter costs, or overhead for running your firm, needs to be accounted for differently. It is necessary that your accountant is able to distinguish between hard and soft matter costs. Learn more about legal matter cost accounting software.
Question 5: Do you understand our billing model across different practice areas?
Your law firm may specialize in one practice area, but chances are you’ve tried more than one type of case. Furthermore your firm probably bills differently across different practice areas. It is imperative that your accountant understands the firm’s billing model across multiple practice areas so you can make data driven decisions about the future of your law firm.
Question 6: Should retainer management live inside my billing or accounting software?
This may be a bit of a trick question, but you want to make sure your accountant is really up to speed when it comes to legal accounting. The answer is both in the legal billing software and legal accounting software.
Question 7: Why do client costs have to be entered into my billing system?
Client costs have to be entered into your billing system so that your firm can pass along those costs to the client. Otherwise your firm will be footing the bill.
Question 8: Can all invoice payments be recorded as income?
Invoice payments received must be captured in both your billing system and your accounting system. From an accounting perspective, the cost portion of the revenue is not income and must be recorded separately.
Question 9: Have you ever had a legal client disbarred?
If your prospective account answers yes to this question it would probably be a good time to withdraw any consideration of hiring this individual. This is your livelihood. It is imperative that you hire the appropriate legal accountant and implement practice management software that meets all of your firm’s needs.
Question 10: Would you like access to our practice management software?
This answer has to be yes. Your legal accounting and legal billing software need to work hand in hand. Sharing and passing data back and forth between the two systems is necessary, and it is necessary that they are in lock step with each other. You could save your firm and accountant a great deal of trouble by using an integrated, legal specific software solution that brings legal billing and law practice management software together in one place.