Law firms are not so different from ordinary businesses. That is because they contract debts, pay bills, receive incomes, pay taxes, among other monetary obligations. Which is exactly why they, like any other business, are not exempt from needing the services of accountants and other accounts department personnel.
In the discussion that follow, we shall dig deeper into the twin issues of the inevitability of dealing with “books” and why law firms cannot do without an accountant.
The Inevitability Of Dealing With The “Books”
In a typical law firm, whether small or large, “books” inevitably have to be kept. The following are some of the reasons why such firms have to inevitably deal with all the financials that go with running or owning a business:
To Keep Systematic Records
The typical law firm handles a lot of different records at any given point in time. These may be records concerning clients (both past and present), cases (both pending and already dispensed with), cash inflows and outflows, appointments, among many others. Given the delicate and sensitive nature of money related matters, an accountant, by reason of their training and background, is better suited for handling these types of records than a lawyer or any other professional.
To Protect the Properties of the Law Firm
Other than records, the typical law firm owns several pieces of properties. These are cars, furniture, electronics, office buildings, stationery, and other inventories. These pieces of property have to be tracked in order to prevent pilferage, losses, or damages. There is also monetary values attached to these properties. Values that must be tracked for depreciation or appreciation. This is where the accountants come in. More than any other professional, accountants are perhaps the most suited people to keep track of these items and their equivalent monetary values, as they can track, record, and keep accurate audits of all of a law firm’s properties.
To Ascertain the Operational Profits and Losses of the Law Firm
Law firms receive huge chunks of money from clients. They also release huge chunks to their clientele. In order to free up the lawyers and enable them to focus on their core role of arguing cases in courtrooms, there is a need for accountants. These professionals have the wherewithal necessary to keep track of the cash inflows and outflows of the law firm. They are thus well able to ascertain the operating profits and losses of the law firms. Apart from that, they also offer appropriate advisory and consultancy services to the firm on money related matters.
To Ascertain the Financial Position of the Law Firm
The financial position of a law firm refers to its net worth i.e. assets, liabilities, and shareholder equity. This information is captured and represented on the company’s balance sheet. It is a show of how profitable the company is and for just how long the company may keep being operational, all factors considered. This information may be easily obtained by the accountants.
To Calculate and Remit Tax Obligations of the Law Firm
Law firms do pay taxes too! The amounts of taxes they pay vary from jurisdiction to jurisdiction. Accountants are familiar with these regulations. They are thus better suited in calculating the tax dues and remitting the same within the stipulated time frames. Since failure to remit taxes within the specified duration of time normally attract some penalties, it follows that hiring accountants for the job are a sure way of mitigating these.
Why Firms Cannot Do Without An Accountant
In this segment, we are going to look at why law firms cannot just do without accountants.
Calculate and Manage Costs and Expenses
This perhaps is the number one role that accountants play in the typical law firm. The core business of law firms is to represent clients for a fee. This fee has to be reasonably priced, taking into consideration the prices levied by other law firms, the prevailing economic climate, among other considerations. Accountants are perhaps one group of people who have the necessary skill to carry out this role perfectly well.
Compliance With Statutory Obligations
Most jurisdictions will normally require law firms to hire accountants as part of their qualifications for licensure. Other than that, law firms are also expected to comply with certain other obligations in their jurisdictions in which they operate. These include taxes, costs, and salaries, among others. Because of this, the hiring of accountants by the law firms is an absolute necessity.
Track Revenue Inflows and Outflows
Law firms generate their incomes primarily through the legal fees they levy their clients. They spend much of their income in paying salaries, taxes, and other financial obligations. Not every small business lawyer in New York may have an accounting or finance background. It is for this reason that the law firms inevitably have to hire accountants.
Creation of Trust between the Law Firm and the Clients
In order to win over potential repeat clients, there has to be some trust between the law firms and the past clients. Winning this trust requires concerted efforts of the various personnel in the typical law firm. However, accountants contribute a lion’s share in this process. That’s because they are the ones who calculate and determine the retainer, track expenses from each client’s escrow accounts, and negotiate legal fees. They are thus an indispensable part and parcel of the typical law firm.
From the foregoing discussions, it is quite evident that no law firm can function appropriately without hiring accountants or having a dedicated accounting department. The contributions they make to the success of any given law firm cannot also be gainsaid or fully appreciated. Any serious law firm, therefore, has no choice but to incorporate them as part of their workforce.