Law firm accounting requirements are very specific when it comes to trust accounting, billing, and performance reporting and should be considered when evaluating accounting systems.
While popular accounting software, such as QuickBooks, is used by many businesses, there are limitations that legal professionals may encounter when using these generic solutions. Law firm accounting requirements are very specific when it comes to trust accounting, billing, and performance reporting and should be considered when evaluating accounting systems.
Benefits of Integrated Legal Accounting Software
Law firm accounting software that is integrated into your legal practice management software offers a wide array of benefits, including:
- Built specifically for lawyers: Created with law firms in mind, legal accounting software understands how you work and how it can make your job easier.
- Automates accounting workflows: With legal accounting systems such as CARET Legal, firms can batch apply trust funds, draw checks from different accounts, receive notifications when retainers fall below designated balances, and more within the same system.
- Improves accuracy and efficiency: When using a generic accounting solution, separate from your legal practice management system, data silos are prevalent. Working out of multiple systems, you’ll likely encounter manual workarounds and duplicate data entry, creating inefficiencies and loss of productivity. With an integrated platform, this is no longer the case.
- Ensures compliance with legal accounting rules: Legal-specific accounting software helps safeguard against common mistakes, including:
- Overdrawing the client ledger. Some law firm accounting applications prohibit users from generating a trust check for more than the amount in Trust for that Matter.
- Three-way trust reconciliation. All three numbers must match on the trust balance, the trust liability on the balance sheet, and the Client trust ledgers. CARET Legal has a report specifically for this purpose.
- Tracking and timing of payment from Trust to Operating when earned. You cannot take your money from the trust account until it is earned and your client has had sufficient time to review the charges. Never issue a refund of retainer until you are sure the funds have cleared the bank (usually 10 days).
- Check stub requirements and confidentiality. Attorneys have the legal obligation to keep matter-related information confidential; this applies to check stubs.
Key Features to Look For
While all systems aren’t created equal, there are specific features you should be on the lookout for when looking for a new law firm accounting solution.
- Robust trust accounting capabilities: Automatically manage trust compliance tasks, provide safeguards, and prevent mistakes.
- Integrated time tracking and billing: All of your back-office functionality is incorporated into one place. This includes customization and intricate legal billing scenarios.
- Accounts payable management: Track accounts payable by client costs and associate line items to specific matters.
- Financial reporting tailored to law firms: Evaluate performance at the firm based on billable hours, time-tracking, and collected receivables by attorney.
- Retainer management: Track the usage of retainer funds against specific matters and easily generate retainer replenishment invoices.
- Integration with practice management software: Utilize a trust accounting system that’s built into a legal practice management platform so that all of your cases are managed in one place.
When using a generic accounting solution, separate from your legal practice management system, data silos are prevalent.
Making the Switch to Legal Accounting Software
While legal accounting software is essential to the functionality of your firm, adopting new systems, programs and processes can be a daunting task. While there are a lot of moving parts to the process, preparation is key. Consider the following steps ahead of your transition.
Assessing current workflows and pain points
In order to move to a new platform, it’s important to evaluate where you are now so you can figure out where you want to be. Start by working with your team to figure out what areas of your workday are causing your employees to spend the most time. What are some common tasks that eat up parts of your day? What tasks are your employees unable to complete in an efficient way? Invest the time to dig deep into your current problem areas so that you can effectively and confidently explain why you’re undergoing a digital transformation to your team.
Comparing solutions and key requirements
There is no shortage of solutions to choose from. So how do you make the right decision? List your key requirements.
When searching for the right platform, ask these questions to yourself:
- What problems do we hope to solve with a legal accounting system?
- What are the costs associated with a platform?
- How will a particular practice management system interact with the other software we use in the firm?
- What kind of time commitment are we looking at for onboarding?
- Can we test out a system before we decide to buy?
Implementation planning and data migration
Proper implementation can alleviate some of the dread or worry your team may feel about the transformation. Make sure you have a clear plan for implementation and data migration that is shared with your team so they know what to expect. Consider a phased approach to allow for a seamless integration and stress-free acclimation.
If you’re migrating from a previous accounting system, consider the following steps ahead of your migration:
- Know where your data is located
- Make sure your current data is accessible
- Make a decision on which data will be migrated
- Conduct a data cleanse of incorrect, corrupt, incorrectly formatted, duplicate or incomplete data
- Set a migration timeline
- Make a plan for accessing the data that won’t be migrated, such as historical data, financials or other reports
Training staff on the new system
A new system will only work if your team members are set up for success. Without their buy-in and support, you won’t reap all of the benefits of a new system. Team members who will be using the system on a daily basis should be involved in the decision-making process.
When a new solution is chosen, education should be a top priority. Training sessions should be performed during the implementation phase to ensure comfortability. Encourage open communication for team members to share their thoughts and opinions.
Ongoing support and maximizing utilization
After you’ve successfully implemented a new process and your team is adjusting, you still need to put in the work. There might be additional questions that arise and resources that are needed. When questions do arise, make sure there’s a clear plan for who they should go to.
Make sure you’re regularly following up with your team to assess the progress of the new system. Break out into focus groups, provide surveys and schedule one-on-one meetings to see what’s working best, what’s changed and any potential pitfalls so you can adjust accordingly.
Why Integrated Law Firm Accounting Software Matters for Success
The most successful firms are the ones that leverage technology to increase day-to-day productivity, collaboration and efficiency. Firms that utilize an integrated legal accounting system can reap the same benefits:
- Enables more accurate and efficient billing: With the elimination of data silos, your team has one source of truth for all your billing and accounting data, providing more accurate reporting and insights.
- Allows staff to focus on high-value work: When your team is equipped with an efficient system that’s designed to help you excel, it allows your staff to focus on high-value work instead of mundane administrative tasks that eat up billable time.
- Reduces risks and ensures compliance: When it comes to the accounting of trust funds, generalized accounting programs don’t have the reports and controls in place that are required to properly account for trust funds, like legal accounting software does. With these controls, your law firm can comply with the Safekeeping Rules.
- Build better client relationships: Having the right tools in place not only creates greater efficiency for your firm, but also benefits your clients. There’s a high value on tech-savvy firms that can perform tasks in the quickest and most effective way possible, eliminating excessive billable time. Streamlining operations allows you to obtain better outcomes for your clients, facilitating trust.
