Bill by the hour. Get paid on time. Every time.

Client money is not firm money

Funds held on account for a client, and disbursements advanced on their behalf, are obligations rather than income. Mixing them with fee income makes the firm look better capitalised than it is and creates a professional conduct problem alongside an accounting one.

The practical requirement is that at any moment you can state what is held for whom, and reconcile it. Where your professional obligations require a separate client account, the records have to agree with it rather than approximate it.

Three billing models, one ledger

• Retainers: billed on a schedule regardless of activity, and the most predictable revenue a firm has. They should go out without anyone remembering to send them.
• Matter fees: billed on milestones or completion, irregular by nature, and worth tracking per matter so you can see which work is actually profitable.
• Disbursements: filing fees, courier, expert fees — money advanced for the client and recovered later. Recorded as recoverable, not as an expense of the firm.

A firm that cannot separate the three cannot tell whether a matter made money, only whether the month did.

Tax treatment for a practice

Legal services are standard-rated at 7.5% VAT, and a practice of any size crosses the ₦25,000,000 registration threshold quickly. Corporate clients also deduct withholding tax from professional fees, so the cash arriving is net and the credit notes need keeping.

Whether the practice is a company or a partnership changes the tax entirely — Companies Income Tax with a possible small company exemption in one case, personal income tax on the partners in the other. It is worth being deliberate about which you are.