When looking for an accountant for your law firm it is important to find someone who has expertise in the unique needs and regulations that law firms face when it comes to their financial management. 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 the heart and not your feet. Take the same approach when choosing an accountant for your law firm –and find someone that specializes in legal accounting.
To make your search a little bit easier, here is a list of 10 questions that your accountant should be able to answer, otherwise you’ll soon be looking for a new one…
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 likely a good choice to handle your law firm. Legal accounting is an entirely different animal from general business accounting. In addition to accuracy, you need to rely on your accountant to provide 100% compliance with little known, legal-specific accounting regulations. Any slip ups on these — and your firm could be disbarred!. That’s why your accountant needs to treat your law firm with more care than he would use with a general business 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, they do not belong to the firm until they have been “earned”. Settlement payments (that belong to the clients) are also often handled by the law firm.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, resulting a in severe ethics violation.
Question 3: How do you track matter costs?
Matter costs may be incurred from the very beginning of working on each case; the client invoices for these expenses may go out weeks, or even months later. 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, need to be accounted for differently. Your accountant must know how 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 work on more than one type of case. Furthermore, law firms typically bill on different fee structures across different practice areas. Your accountant needs to understandsthe your firm’s billing models across all your 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 in the 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 those costs along to the client. Otherwise your firm will be footing the bill for expenses that rightfully should be recovered from your clients.
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 legal accountant and implement practice management software that first and foremost keeps your firm out of trouble.
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 essential that they are in lock step with each other. You can save your firm and accountant a great deal of trouble by using an integrated, legal specific software solution that brings legal billing and practice management software together in one place.
CosmoLex does it all — time tracking, billing, business accounting, trust (IOLTA) accounting, calendaring, task & document management – eliminating the frustration of juggling several programs to run your practice. Take the next step towards a more efficient, more profitable practice: Click here schedule a 30 minute consultation with one of our legal specialist to analyze your firm’s current setup or watch a quick video to see how CosmoLex can help you. You’ll be glad you did!