Keeping up with client demands and changes in the industry, along with compliance requirements, can seem never-ending. Let’s face it – law firms have so many unique pieces that need to deal with that other businesses don’t have to. Legal accounting is one of those particular pieces, but with the right technology, it can make one area of your practice easier to manage.
Get what you need
Law firms have to wade through complex requirements to maintain trust accounting compliance and to keep up with proper record keeping. Even in the smallest of law firms, transactions can quickly become confusing or inaccurate without the right processes and tools to track them.
If you want assurances that your legal accounting is accurate and compliant, you should look to avoid generic programs. Many of the features related to legal accounting don’t come with standard programs:
- Safeguards to prevent overdrafts
- Ability to tie entries to specific matters
- Individual client ledgers, even for pooled trust accounts
- Prevention of commingling of firm and client funds
These features do, however, come with programs that are designed entirely for lawyers. They know your needs and work to accommodate them.
It’s not that reports created by generic programs or by hand are unreliable (although doing them by hand can lead to more mistakes), but they’re often much more complicated to create. If you want to keep up with proper trust accounting, that means regular reporting.
There are also reports that aren’t necessarily required to be run but are beneficial to review monthly or quarterly. Using accounting software can help you create some of the reports you need to review and address key financial metrics, like a profit and loss statement. But you’ll also want to get more specific, using technology to help you take a look at what practice areas are most profitable, where the largest expenses are and opportunities for firm growth.
As part of those required trust accounting reports, three-way reconciliations top the list. Just like with most things related to accounting, doing them by hand requires a significant amount of time – especially if you need to find out why the amounts aren’t matching up correctly.
With technology, you can have your bank account feeds tied into your accounting program. This makes reconciliations easy and fast, and eliminates the need for manual calculations. Rather than having to run side by side comparisons, the program can quickly generate a report for you and help you locate any inconsistencies.
Automate recording of matter costs
Keeping tabs on matter costs and assigning them to the proper categories isn’t only important to billing and making sure you recover costs. It’s also part of good bookkeeping and is helpful in determining what changes might need to be made.
For example, soft costs are those related to firm overhead, such as printing and mailing. If you take a look at your soft costs and notice there’s a trend toward higher costs, you may need to look at areas to cut back or increase hourly or retainer rates in order to cover those additional expenses. Alternatively, you can take a look at hard costs (ones that are often passed on to the client, such as court reporting), and see what portion of total case costs they make up.
With technology, you can automatically assign particular charges and entries to either soft or hard costs. Knowing these ahead of time creates consistency in how these are recorded, and simplifies the process while removing the need for someone to look at each individual entry and assign it.
Make revenue distribution easy
Taking in law firm revenue would be much easier if it just were applied to the client account. Instead, it needs to be applied in the following order:
- Cost recovery, including reimbursable client costs
- Late fees and finance charges
- Fee income
Doing this manually can be tedious and open you up to inaccurate allocations. This is another piece that generic software doesn’t handle very well. Legal-specific programs, however, can take any revenue and apply them to the appropriate accounts automatically. You won’t have to wonder if the calculations were correct or try to customize a system to do it the right way – it just gets done with every revenue entry.
Accounting made easy
Ok, accounting may never be truly “easy” – after all, attention to detail is required to make sure everything is captured and recorded correctly. But it can be made easier with technology. So many components of the accounting process can be simplified when they’re handled with the right tools designed to handle legal-specific requirements, giving you accuracy, extra time, and the information you need for informed decision making and compliance.