Solo and small law firms are small businesses. Because of that, law office managers often think that they can survive by using the same solutions as other small businesses to manage their practice. This common misunderstanding can lead to headaches, disorganization, and even ethics violations for law firms. More so than in any other area, law office accounting needs tools and solutions that are specific to the legal industry.
Why Is Legal Accounting So Different?
Legal accounting is much more complicated than accounting for other small businesses. Of course, lawyers need to be concerned with basic areas of accounting like profit & loss, cash flow, and account reconciliation but there are also many other areas of accounting that are unique to a law firm. These areas are:
- Client Funds (Trust) Accounting
- Matter Cost Accounting
- Third Party Billing
- Fee Allocation
- Revenue Distribution
These areas of legal accounting are completely foreign to other small businesses. In order to effectively navigate the challenges and complexities of legal accounting, it is imperative that law firms implement legal accounting systems that are integrated with their practice management systems.
Integrating a firm’s practice management system with their legal accounting system will allow them to interact with each other and ensure that the data in each system is also aligned with each other at all times. Aligning these two systems is good for business, but it’s also necessary to ensure that your firm is always audit ready and in compliance with your jurisdictions legal accounting requirements.
Aligning your firm’s practice management system with your legal accounting system will:
- Reduce data entry errors
- Increase your ability to effectively manage retainers
- Allow you to easily receive invoice payments from retainers
- Reduce leakage from unbilled expenses and client costs
Fully Integrate Your Practice Management & Legal Accounting Systems
As previously mentioned, law firms are best served by legal-specific solutions. It is true that some law firms have customized general business accounting software to meet their needs, but this is generally a long and messy process that still leaves the firm open to a number of compliance issues. To put your firm in the best position it is important to find a legal-specific solution to manage your practice and your legal accounting, like CosmoLex. To learn more about integrated legal accounting, and the major challenges of separate billing and accounting programs, watch this 3-minute video.