Why Law Firms Need Tax Accounting and Financial Management

Estimated Time to Read: 3 minutes

A law firm is like any other business. They are providing a service and that service is subject to the cycle of the economy. Accounting law firms need sound financial planning and tax preparation to keep them competitive and viable in the marketplace. This is where financial analysis of the market, organized financial records, solid accounting practices and internal controls and taking care of employees will help to protect firms. Let’s discuss some of the services that law firms can expect from tax accounting and financial management professionals.

They will Provide a Solid Market Analysis

Law firms depend on the fresh influx of clients. To make this happen law firms need the most accurate and timely information on the possibilities for clients depending on market trends. Competent financial managers will be able to provide advice on where law firms should seek out new business. While diversity in clientele is an intelligent strategy, financial planning  also make sure that your firm doesn’t rush into decisions and has the right staff to take on new business or niche services. Proper financial analysis can help determine exactly how profitable a client base is likely to be in the short and long term.

They will Provide Organized Financial Records

In law firms, clients are billed in various ways. Some clients are paying a retainer, some are on a contingency basis, and some are a combination of the two. Billing is complex and it must be kept organized. A proper billing and financial management plan helps to set up best practices and procedures for accounts payable and receivable functions in a law firm. This is important because you want to ensure that finances are transparent for the sake of client confidence. It’s also essential that employees are paid fairly. Let’s not forget when it comes to tax time; you want all of the records to be accurate and comprehensive so they are easy to follow.

Tax Accounting

They will Provide Internal Controls

Hand in hand with keeping organized financial records, it is also extremely important for law firms to consult with accountant and financial management experts to set up procedures and best practices on how to run a law office, and how to properly segregate duties so that no individual has too much control over the finances. This will help to significantly decrease the chances of financial malfeasance and keep the finances above reproach.

They will Provide Protection against Uncertainty

Law firms depend on attracting and maintaining clients. Sometimes clients leave a firm and this means a loss of income until another client takes their place. This can create volatility in the income of a law firm. Firms need to be prepared for this reality and be ready to ride out the loss of even the most lucrative clients. This can be done through planning for it and saving the capital to overcome the setback of losing a client.

They will Provide Protection for Employees of the Firm

Proper financial planning can ensure that a law firm’s employees are taken care of in times of need and crisis. Proper financial planning can account for this and include insurance and benefits for employees in the annual budget of the law firm. If an employee becomes ill and has medical bill, insurance and benefits can cover them. Taking care of employees makes sound financial sense. Also, it is a possibility that at some point a firm may be the target of legal action. Malpractice insurance can be a part of your accounting and financial plan as it can help to mitigate the financial repercussions of a law suit.

Law firms may help people with their legal issues, but they are still a business. They need a comprehensive and solid accounting and financial plan (www.managingpartner.com/sites/default/files/ARK1708%20-%20Financial%20Planning%20and%20Management%20for%20Law%20Firms_Sample_Chapter.pdf) to be prepared for anything. An accounting and financial management professional will provide a plan that will aid law firms by providing financial analysis of the market and their own firm, the organization of their financial records, setting up internal controls, and protecting employees and the viability of the firm against uncertainty with insurance and employee benefits. These are the main reasons why  law firms should reach out for tax accounting and financial management services from qualified professionals.