When running a law firm all owners and executives cannot deny that bookkeeping for a law firm is incredibly important. It builds trust with stakeholders, allows law firm accounts to be compliant with legal requirements, and is the cornerstone of making the right business decision when faced with operational questions. Let’s unpack 10 reasons why accounting for law firms needs to be accurate to produce transparent financials.
10 Reasons Accurate Financials Are Important
Financial reports show just how financially successful your company is for a specific period and are the best starting point to forecast future outcomes.
1- Tax Purposes
All companies are required to comply with tax regulations and law firms are not exempted. Monitoring and managing your financial statements correctly ensures that firms can calculate and report taxes correctly. When law firm owners invest in keeping an eye on their law firm accounts it has many benefits like avoiding inputting errors, legal issues and financial penalties.
2- Financial Health
One of the most important reasons for accurate accounting for a law firm is that it provides an overview of a law firm’s financial health. These financials help internal and external stakeholders assess a firm’s stability. It allows for the business to identify problem areas and opportunities so they can be addressed immediately.
3- Operational Efficiency
Transparent law firm accounts are essential when wanting to prove the operational efficiency of a law firm. You can see in which aspects the firm is doing well and where you could be doing better in terms of profitability and loss.
4- Cash Flow Management
Effective cash management aids businesses in managing their funds. Due to the nature of the client base, law firm accounts are prone to irregular income streams. Payments are made periodically which complicates the process of gauging income availability. When decision makers take the time to keep a keen eye on the bookkeeping of a law firm, it helps them manage efficiently as they can predict when cash is available to pay expenses.
5- Shareholder Equity
Having partners or shareholders invested in the business calls for transparent bookkeeping for a law firm. All stakeholders need to be able to witness the growth of the firm and be aware of the firm’s net worth as their equity is at stake.
6- Budgeting And Forecasting
When it comes to long-term financial planning, accurate financial statements are incredibly important. It ensures that accounting for a law firm reflects reliable financial data which in turn assists in setting realistic goals and budgets. In turn, this allows firms to make informed decisions in terms of hiring and marketing.
7- Fraud Detection/ Reducing Errors
Accounting in law firms, like in most industries, needs to be incredibly accurate to ensure no irregularities are missed. Detailed financial reporting keeps track of errors and fraudulent activities and acts as a preventative measure. This is because regular reconciliations and verification of financial data highlight any discrepancies that may have crept through.
8- Building Stakeholder Trust
It is very important to gain the trust of all stakeholders and be able to provide accurate financial reports when required. Clients equate their legal council’s financial stability with their professionalism. Partners on the other hand need to be confident in the firms’ financial management.
9- Legal And Regulatory Compliance
Accounting in law firms is subject to various legal and regulatory requirements which are all related to financial reporting. To reduce the risk of legal consequences firms need to be able to prove that their financials are compliant with these regulations.
10- Transparent Client Billing
Since most law firms bill clients based on their working hours, records are important. Clients prefer detailed billing statements as they give them an overview of the associated costs in terms of services received. Financial statements aid in proving transparent and fair billing practices.
Sage Software And Outsourced Financial Management Solution
Accurate financial management is very important but it’s also quite complex. Because lawyers aren’t trained accountants firms run the risk of introducing errors into their accounts if delegating this task to their legal team. Manual accounting in law firms is error-prone and having the work done by unskilled staff could lead to inaccuracies.
The benefit of using Sage accounting software for a law firm is that it minimizes potential data entry errors. Using the software also ensures that the financial data is consistent across the whole business and the automated reporting allows for quick financial statement access.
All Sage accounting software can be tailored to meet the law firms’ requirements with the addition of essential built-in, up to date, data security measures. Because the software integration and implementation as well as the financial management can be outsourced this is not only a cost-effective solution, but it is convenient as well, as it comes with immediate access to experts.
Maintaining accurate financial management is both complex and time-consuming. While In-house accounting teams are costly and need supervision – due to the risk of fraud. As we have highlighted the challenges it is in our experience from dealing with many law firms over the years that the best solution is outsourcing accounting tasks to a reputable company that uses cloud-based software as strong accounting systems are the foundation to success and will ensure your firm gains stakeholder trust with transparency
Why Outsource to Lescault And Walderman
Because Lescault And Walderman employ over 30 accountants across 18 states, your firm will gain easy access to the right kind of experts. Outsourcing to a law accounting firm is also cost-effective as you are only required to pay for the exact services you need to get the job done right.
For more articles that help law firms see the below
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Technology Challenges Facing The Legal Sector In 2023
Revenue And Expense Tracking For Law Firms: 10 Tips For Success
How human error and manual accounting data entry are costing your law firm
The Top 5 Ways CFO Services Can Help Increase Your Law Firm’s Bottom Line