Why Attorneys and Law Firms Should Care About Accounting

Estimated Time to Read: 3 minutes

Standing on the outside, it seems obvious that law and finance are two different categories – each with an area of specialty that requires education, training and experience in order to be considered an expert in the field. Not always so obvious is the connection between the two. Before computers, the ledgers kept by a business were labor-intensive – transcribed with paper and ink, where mistakes were indelible and lived on forever unless the entire page was rewritten. Regardless of whether the “contra-entry” ledger or the “append-only” ledger is used, the ledgers are the ledgers are the ledgers. When analyzed more closely – law and numbers share surprising similarities. When the question is asked, why attorneys and law firms should care about accounting, it’s because accounting for law firms unfolds connections to daily life and law.

Law vs. Finance

An article (https://blog.law.cornell.edu/voxpop/2012/11/16/digital-law-what-lawyers-need-to-learn-from-accountants/) from a Digital Law class at Cornell University titled, “What lawyers need to learn from accountants,” walks the reader through legal corpus management in a prototypical U.S. legislature from the perspective of an accountant. This basically explains how accounting concepts can be applied to government bills and accountability for the term of a government. Take it one step further and apply accounting concepts to daily life. Every relationship has both surplus and deficits that can be managed on an emotional balance sheet. Why should attorneys and law firms care about accounting? Because accountants provide the knowledge, skill and experience necessary to quickly recognize issues and challenges that impact law practices – and provide solutions, without reinventing the wheel in the process. Lawyers rely on accountants for their financial livelihoods. Woe to the law firm that tries to manage its finances without the assistance of an accounting professional.

Day-to-day Needs

Imagine trying to organize finances for a large law firm without the help of an accounting firm. There are salaries, bonuses, and files in progress, expenses, and other assets that need to be considered. That’s known as capital structure – how a firm finances its overall operations and growth by using different sources of funds. Maybe the firm is looking for ways to save money – attorneys and law firms should care that an accounting firm can conduct profitability improvement studies in order to cut fat and improve targets. Big firms charge billable hours for their time – that’s a full-time job to manage for one lawyer, not including the larger firms that can employ hundreds of lawyers.

Operational Reviews

A profitability improvement study is different than an operational review because an operational review refers to the act of examining the way in which a company or department works to see how it can be made more efficient and profitable. Obviously there are some similarities. The primary goal of an operational review is to assess the effectiveness of internal operating processes and procedures designed to support and fulfill the customer’s service level requirements – as well as how improvements can be made. For any business profit is the bottom line – lawyers and accountants are no different. Attorneys and law firms should care about accounting efficiencies as a business best practice in order to ensure that they are complying with State Bar regulations, as well as maintaining quality staff and happy clients.

Firm Dissolution

All good things eventually come to an end. The encore follows the opening act, the foam is followed by the dregs of a beer – and law practices eventually dissolve. Partners retire, new partners are brought in and associates are promoted to partners. Change is inevitable, the only certainty in the world aside from death and taxes –both which require lawyers and accountants. Dissolving a partnership is one way to close down a law firm and there are a variety of reasons for it. That’s why attorneys and law firms should care about accounting; it provides the education and experience as well as the ability to make solidly-based decisions on when and why it’s prudent to dissolve or restructure.

In a law office, accounting firms refers to keeping track of money flowing in and out. This is important for the lawyers, clients, record-keeping and above all, trust. Why should attorneys and law firms care about accounting, because they can run a more efficient and effective practice, understand, question and use financial reports and information and make changes based on the information. The professions remain incontrovertibly intertwined.

Pin It on Pinterest

Share This

Share this post with your friends!