Accounting and Legal Professionals: What They Can Learn From Each Other
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You studied accounting in school because you loved numbers and the best practices make perfect sense to you. But if you’ve worked in the field for long, you know those best practices don’t apply to every business.
Hereare a few tips accountants can learn from lawyers (and some ways accountants can help them out).
What accountants can learn from lawyers
- Don’t give legal advice. As trusted individuals, accountants may be asked financial and compliance-related questions. This may also lead to legal questions such as, “What are the advantages of setting up an LLC?” While accountants can make recommendations as to the best entity from a tax perspective, it is still best to have an attorney also weigh in for other reasons. they aren’t allowed to give legal advice and may put their business at risk by giving others the appearance they’re practicing law without a license.
- Build trust with client services. With client services, Accountants can customize accounting practices to match their client's needs. Offering these services is a great way to build trust and eventually provide greater impact to businesses with high-end advisory services (i.e. outsourced CFO). As accountants work with a client, they may find decisions that could be improved or are damaging to the business. Being a trusted adviser, gives accountants the ability to add more value.
What lawyers can learn from accountants
- Don’t use a generic accounting package. Most accounting packages aren’t equipped to handle the unique challenges of a legal practice without extensive customizations. Instead, you need legal accounting software designed to handle trust accounts, manage retainers, and track the hours you bill your client(s). An accountant can help you select an accounting solution that will better serve the unique needs of legal practices.
- Stop doing double (or triple?) data entry. You can reduce your data entry errors by keeping all your data in one system, instead of entering data into a system to manage your firm and then using another for your accounting needs. By doubling your data entry, you increase the likelihood of mistakes and the time it takes to do entry.
- Utilize a chart of accounts. When you set up your accounting system, make sure you include a chart of accounts that will allow you to book transactions to the appropriate account. This is extremely important for attorneys because of the strict trust accounting requirements.
- Track legal specializations. Many firms specialize in multiple areas of law. Tracking the income by each specialization will allow you to understand where your revenue is coming from and know which changes you need to make in order to increase revenue.
- Regularly reconcile. Reconciling your financials on a regular basis keeps your financial information up to date and helps you make business decisions. It also allows you to keep up with your money in real-time. In order to be useful, bank reconciliations require both consistency and discipline.
- Keep your trust accounts audit-ready. Law firms regularly use retainers to maintain consistent cash flow from their clients. While these funds may be in the firm’s possession, they can’t be used until they’ve been earned. Law firms can also be responsible for personal injury settlements with potentially multiple trust ledgers per client. These funds must be kept separate and cannot be used for other purposes. You should reconcile these trust accounts and prepare them for auditing every month.
Everyday accountants use best practices and probably take them for granted. However, sometimes you have to adapt to meet the special needs of your firm.
Whether you're a legal or accounting professional, learning firm administration is an ongoing process. There will always be ways to improve administration. But when working together, these two professions have opportunities to learn from each other.