Professional firms sell time and expertise, and the gap between doing the work and collecting the cash is where the money leaks. We act for law firms, consultancies, engineering practices, architects, marketing agencies and recruiters across Brisbane and south-east Queensland. This page covers work in progress, trust accounting, partner remuneration, pricing, structure and the long view on what the firm is worth.
Hours are worked in March, billed in May, chased in July and written down in August when the client pushes back.
02Work in progress is unbilled work.
03Law firms carry an obligation no other professional practice has in the same form: client money held on trust.
04The economics of a professional firm come down to three levers: how much of each professional's time is billed, what rate it is billed at, and how much of what is billed is collected.
Hours are worked in March, billed in May, chased in July and written down in August when the client pushes back. The profit and loss for March looks fine because nobody measured the work in progress. The one for August looks terrible because the write-off landed there. Neither tells the partners what the firm actually earned, and a firm that cannot see its real monthly profit cannot price, hire or distribute with any confidence.
The industries on this page differ in what they sell, but the finance problems are the same: measuring work before it is billed, pricing it so it is profitable, paying the people who own the firm in a way that is tax effective and fair, and holding the structure together as partners come and go. Law firms add client trust money, which has its own rules.
We bring the tools of a larger firm's finance function to practices that are too small to employ one: monthly management accounts that include WIP and lock-up, pricing and utilisation reporting, remuneration modelling and a structure that is reviewed rather than inherited.
Work in progress is unbilled work. In a firm that bills by the hour or by milestone it is an asset most sets of accounts ignore, which means profit is understated in busy months and overstated when the invoices finally go out. Recording WIP monthly, valued at what will realistically be billed, gives the partners a true picture and shows the firm's lock-up: how many days of revenue are tied up in unbilled work and unpaid invoices. Lock-up is the single most useful number in a professional firm.
Retainers and fixed-fee engagements run the other way. The client pays up front and the firm owes the work. That cash is deferred revenue, not profit, until the work is delivered. Agencies and consultancies that treat retainer receipts as income spend it, then find the year end has a tax bill on money already used to do the work. We set up the practice management or project software to track WIP, retainers and deferred revenue, and connect it to Xero so the management accounts show the real position.
The tax side has its own rules. Most professional firms return income on an accruals basis when a recoverable debt arises, and GST follows the invoice or the payment depending on the accounting method chosen. We make sure the method suits the firm's cash cycle.
Law firms carry an obligation no other professional practice has in the same form: client money held on trust. In Queensland, trust accounts are regulated under the legal profession legislation and overseen by the Queensland Law Society. The firm must keep trust records separate from its general accounts, reconcile them monthly, hold the money in an approved account and have the records examined each year by an external examiner.
Trust money is never the firm's money. The most common problems we see are timing, where costs are transferred from trust before a bill has been properly delivered, and reconciliation, where the trust ledger and the bank drift apart and nobody notices for months. Both are reportable. We help firms set up trust accounting software that enforces the rules, run or review the monthly three-way reconciliation and prepare for the annual examination so it is uneventful.
For firms outside the law, the equivalent issue is client funds held for disbursements, media spend or candidate placements. These are not regulated the same way, but the accounting principle is identical: money held for someone else is a liability, not revenue.
The economics of a professional firm come down to three levers: how much of each professional's time is billed, what rate it is billed at, and how much of what is billed is collected. A few points of utilisation lost across the team, or a realisation rate that quietly falls as discounts become habitual, takes a large bite out of profit without any single decision ever being made.
We report these numbers monthly by team and by fee earner, and we help partners use them: to price fixed-fee work on the real cost of delivering it, to decide whether a new hire pays for themselves, and to see which clients and services are profitable after write-downs. Profit per partner, or per equity holder, is the number that ties it together, and it is the number a merger partner or acquirer asks for first.
Pricing is the lever most firms are slowest to pull. Rates set years ago, discounts that became the default, scope creep on fixed fees and free advice that never becomes a file all compound. A pricing review with the numbers on the table is usually the fastest profit improvement available to a professional firm.
Professional firms use every structure in the book. Traditional partnerships of individuals are simple but expose every partner to the others' liabilities and offer little flexibility. Incorporated practices give a capped tax rate on retained profit and a clean way to bring in and remove owners. Partnerships of discretionary trusts, where each partner's interest is held by a family trust, are common in law and accounting. Unit trusts and hybrid arrangements suit firms where the ownership is more corporate.
Many firms also run a service trust: an entity that employs the support staff, owns the equipment and fit-out and provides those services to the practice for a fee. The ATO accepts service trust arrangements in professional practices but has published guidance on what a commercially realistic fee looks like, and has been clear that these structures cannot be used to divert a professional's personal exertion income to related parties. The fee has to reflect the services actually provided, be documented and be paid.
Professional bodies and legislation also constrain the choice. Incorporated legal practices and engineering firms have ownership and governance rules, and some professions limit who can hold equity. We design structures that work for tax, asset protection and succession inside those constraints, and we review them whenever a partner is admitted or retires.
How the owners are paid is both a tax question and a fairness question. Partners in a partnership take drawings against profit share. Directors of an incorporated practice can take salary, dividends or a mix, with super guarantee and franking consequences for each. Trust distributions add another layer. The right mix depends on the partner's marginal rate, their super position, the firm's need to retain capital and the Division 7A rules on money taken from a company.
The ATO applies the personal services income rules to professionals who earn income mainly from their own skill, and separately applies guidelines on the allocation of professional firm profits, which set out the risk it sees when a principal's share of profit is distributed to associates or entities taxed at lower rates. A firm that distributes profit to a partner's family trust needs to be able to show the arrangement sits within that guidance. We model the remuneration mix each year, document it and keep the firm inside the lines.
Every firm on this page can be sued for the advice it gives. Professional indemnity insurance is mandatory for most of these professions and is a significant cost that rises with revenue and claims history. Run-off cover after a partner retires or a firm closes is often forgotten in succession plans. We build the premium and the run-off into the budget and the exit plan, and we make sure the structure puts the partners' personal assets behind an entity rather than in front of it.
The long view matters because professional firms are valued on their people and their recurring clients, both of which can walk out the door if succession is left too late. Whether the plan is to admit younger partners, merge with another practice or sell to a larger group, the firm needs clean financials, measured WIP and lock-up, documented client relationships and a structure that can absorb the change. We have worked through mergers and succession with firms from Brisbane's CBD to practices in Logan and Jimboomba, and most of the work is done by video wherever the firm is.
“Lauren has been absolutely fantastic in guiding us through the set-up of our Pty Ltd business.”
Work in progress is work that has been done but not yet billed. If your firm bills by the hour or by milestone, WIP is a real asset and leaving it out of the accounts makes monthly profit swing with the billing cycle rather than with the work. Recording it monthly, valued at what will realistically be invoiced, shows true profit and reveals lock-up, the days of revenue tied up in unbilled and unpaid work.
It depends on who owns it, how profit will be used and what happens when owners change. A company gives a capped tax rate on retained profit and a clean way to issue and transfer shares, which suits firms reinvesting or planning to sell. A discretionary trust gives distribution flexibility for a family-owned firm but cannot retain profit cheaply. Many firms use both, with a trust holding company shares.
Lock-up is the amount of the firm's revenue tied up in unbilled work in progress and unpaid invoices, usually expressed as a number of days. It measures how long cash takes to arrive after the work is done. High lock-up means the firm is funding its clients. Reducing it through faster billing, clearer engagement terms and tighter collections usually frees more cash than any cost cut.
Monthly. Queensland's legal profession rules require the trust ledger, the trust cash book and the bank statement to be reconciled each month, with the reconciliation kept on file, and the trust records must be examined by an external examiner each year. Trust money must stay separate from the firm's general account, and costs can only be transferred once a bill has been properly delivered to the client.
Sometimes, but the ATO watches it closely. Its guidelines on the allocation of professional firm profits set out the risk it sees when a principal's profit share ends up with associates or entities taxed at lower rates, and the personal services income rules can also apply. The structure, the commercial rationale and the amount the principal keeps all matter. We review each arrangement against the current guidelines before it is put in place.
For accounting purposes, no. A retainer paid before the work is done is deferred revenue, a liability to deliver, until the services are performed. Treating it as income on receipt overstates profit and leads to spending cash the firm has not yet earned. The tax treatment depends on the firm's accounting method and the terms of the retainer. We set up the books so retainers are recognised as the work is delivered.
