Making sure your accounting books are up-to-date and compliant can bring up a laundry list of concerns for lawyers including reconciliations, error-free ledgers, and overall compliance. Using dated technology can make the task even harder than it needs to be, with lots of customizations needed to make your software work for the specific needs of legal accounting.
Taking the approach to create a modern law firm allows lawyers to take the burden out of IT and scalability and benefit from constantly updated tools and cloud-based programs. With the ability to work from anywhere, remove many of the responsibilities associated with operating IT and eliminate the need to purchase new licenses in order to get upgrades, modern practice management is being adopted by many firms. From billing to practice management to accounting, modernizing your law firm can provide convenience, compliance, and more billable hours for a relatively low cost.
What exactly is legal accounting?
General business accounting covers the traditional accounting needs, which for the majority of companies can be handled by generic accounting software like QuickBooks®. However, law firms have unique types of accounting they must keep in mind, including matters costs and income accounting along with fee advances and trust accounting.
These pieces are often the ones that can make accounting so burdensome for lawyers, because generic software isn’t built to handle these needs. Instead, firms wind up having to create workarounds to make sure all of the required pieces are being covered. Modern practice management can take the workarounds out of the equation, giving you an accounting program designed specifically for law firms.
The right accounting tools help make all the difference in how your accounting is handled, especially if your accounting program is built into your practice management and billing program. Created to connect data and make it easy to tie matters to accounting, modern practice management is all about taking advantage of these programs to eliminate workload and create efficiencies.
These accounting activities can be made easier by the implementation of modern practice management:
Accounts Payable & Matter Costs
Tracking the firm’s bills and expenses are usually daily tasks at a law firm. For those that are repeating, such as monthly or quarterly bills, you can set up recurring payables to avoid potentially missing a payment. Reimbursements should also be carefully tracked, and with integrated matter management you can easily tie costs to their respective cases. Attaching the related documents, such as the receipt, can help provide the documentation you need to support the charge.
You also want to leverage imports and fees, because it can be easy to lose track of these expenses. By connecting your bank accounts and separate credit card ledgers to the system, you can have those items come directly into the system and see any items you may have missed and make sure they make their way onto an invoice. Soft costs, such as printing and mailing, can also be imported into the system to help you gauge case, practice area, and attorney profitability.
Printing checks, rather than manually writing them, helps to promote consistency. To save time, you can also do these in a batch to get them out quickly.
Part of income tracking is for compliance purposes, but it’s also part of best practices for running a business and metrics analysis. Keep track of the allocation of billing and payments, including the allocation of partial payments. Most generic accounting tools allocate payments proportionally, but lawyers need to pay off all costs before they can put payments toward fees earned. This is where legal-specific tools can really show their value, automatically applying payments to the appropriate categories in order.
Advanced functions such as class-based reporting, to set up classes for areas of practice, attorneys or offices, can let you generate a profit and loss statement for each class.
Trust Funds Management
Trust fund management is the biggest area where firms who are using a generic accounting tool struggle. Only legal-specific tools have the concept of a matter, individual client ledgers for the same pooled account and safeguards to prevent mistakes such as negative matter ledgers or commingling of funds. Regular reporting, a clear audit trail, and error-free books are critical if lawyers want to stay compliant.
With all of the responsibilities lawyers have and the requirements associated with trust fund management, lawyers can use technology to make sure they’re in compliance.
Modernizing Legal Accounting
To fully modernize your accounting, legal-specific accounting tools can help. With a cloud-based system, you can have improved collaboration with off-site bookkeepers as well as your team. With the ability to leverage transaction imports and bank fees, you’ll be able to make sure all costs are captured while statement import can automate reconciliations. All of these pieces add up to hours saved every month.
Legal-specific tools also provide compliance assurance, by easily running reconciliations, running the reports you need and handling payments and tracking appropriately. Modern practice management is more than just matter management. When applied to your billing, you can use technology to do the heavy lifting in the background to give you up to date, balanced and compliant books.