Be prepared for the worst case scenario, no matter how remote the possibility of it happening.
Starting and running a law practice is a tough thing to do. There are many hats you need to wear as you are not only the person running your practice, you are likely the person delivering your legal services.
As such, you need to surround yourself with the right team of outside professionals to ensure your long term success.
One of the professionals every law firm needs in their corner is a CPA who understands the practice of law firm accounting.
Your CPA will handle a few things for you, including but not limited to bookkeeping, corporate and individual tax returns, employee payroll and employee benefits.
In many cases, the CPA you choose will be with you for the life of your firm, but what happens when they are not? What happens when your CPA goes out of business, or in some cases, just disappears?
I have been practicing in my own firm for over 15 years. I don't plan on going anywhere anytime soon, but you never really know. Anything could happen unexpectedly to cause me to stop practicing.
It happens, and it happens for many reasons. CPA's retire, die, transition to new careers or, in the worst cases, get their license revoked because of unethical behavior. In those cases, often times you will find yourself not even knowing where your CPA is.
So, what should you do?
Get Your Files
Whether you are using Quickbooks for Law Firms, or another online bookkeeping product, it is critical that you obtain your files. This is something you should be doing on a monthly basis so that you are prepared in the event of your CPA suddenly going out of business.
When you transition to a new CPA, these files will help your new CPA continue with the accounting of your firm without skipping a beat.
File a Tax Extension
If your CPA vanishes during tax season, the first thing you may want to do is file form 4868, which will give you a six month extension to file your returns, and give you plenty of time to find a new CPA.
Ensure Your Returns Are Filed
If your CPA goes out of business at any time during the year that your tax returns are due to be filed, you must make sure that your returns get filed.
This includes any and all extenstions that your CPA filed on your behalf. If you are not filing on time, and have asked for an extension, you must make sure your return is filed when the extension is due.
If you are unsure if your extensions were filed, you can find out by checking with your state department of revenue and the IRS. You can also ask your new CPA to follow the trail on your behalf.
Make Your Estimate Tax Payments
If you are not a W-2 employee, and your law firm is profitable, you will need to be making estimated tax payments in lieu of W-2 witholdings. These payments are made each quarter, and if they are not, the government will assess sever penalties and interests at the time of your tax return filing.
You must make sure that your payments are made on a timely basis, particularly if the payments were set up by your prior CPA.
Handle Any Notices
If your law firm is in business long enough, there is a good chance you will receive notices from the state or federal department of revenue. In many cases, your CPA will be handling these notices on your behalf. If your CPA goes out of business, you must make sure that you do not have any outstanding notices. If you do have outstanding notices, you must make sure you address them as soon as possible.
Payroll Is Processed
Many CPA's handle payroll for their clients. If your CPA manages the payroll for your law firm, you need to ensure that your employees get paid.
There are a few things you should do on a monthly and annual basis to ensure that you are prepared if and when your CPA vanishes.
- Keep copies of your tax returns handy
- Always have your accounting files sent to you
- Keep copies of any and all tax notices you receive, and make note of when they are resolved
- Make sure any payments you need to make are made when they are due
If you take these steps every month and year, you will be much better prepared if your CPA vanishes unexpectedly.
Accounting for Escrow
For those of you who practice real estate law, and use an outside CPA to account for your escrow transactions, you need to take action as soon as possible.
This quick guide to real estate escrow accounting will help you understand all that goes into your monthly reconciliations, and what you have to get your hands on if or when your CPA goes out of business.
Work with a CPA
If your previous accountant was not a CPA, I strongly suggest that your new accountant be a CPA. There are a number of reasons, but none is more important than the level of expertise that is required to become a CPA and maintain the license ongoing.
I don't want to scare you into thinking that your accountant is going to disappear on you. Particularly if you are my client, I want you to know I do not expect to stop practicing accounting.
In any event, you should be prepared for if or when something like this happens. You don't want to be left having to deal with payments that were not made, tax returns not filed, notices not responded to or accounting books that are a mess.
In the end, if you plan ahead for the contingency of having to find a new accountant, you will be better if the unimaginable happens.