For new law firms, processes, procedures and infrastructure are important decisions. These are important for future plans – choosing systems that can support a firm as it grows.
Accounting systems are a good example, because a law firm that outgrows it existing accounting tool will force a change precisely during a growth spurt. In the worst cases, making a dramatic change can put the brakes on cash flow even as more new clients are walking in the door.
These are the conclusions drawn in a new LexisNexis white paper published today titled The Law Firm Guidebook to Accounting Systems (reg. req.) Authors Steve Fetters, MBA and attorney Christopher T. Anderson combined first-hand experience, countless conversations with customers and interviews with CPAs with law firm experience to develop the paper.
“An investment in time and money is required whenever a law firm changes their [a law firm’s] back-office billing and accounting system,” says Deborah J. Schaefer a CPA. “Therefore, it’s best to invest in a solution that can grow with the practice.”
Download a comprehensive white paper on legal accounting software:
The Law Firm Guidebook to Accounting Systems
Four Choices in Law Firm Accounting Software
The paper identifies four primary options in law firm accounting software and spells out the pros and cons of each strategy in significant detail. A summary of those four options include:
1. Manual Record Keeping. Can a solo firm operate on a checkbook or general ledger? Absolutely, however it’s usually advisable to have a good bookkeeper or source of accounting advice. Other than a basic understanding of accounting, no special skills are required. There are of course drawbacks in access to easy analysis, tax preparation and in financing, should a firm every desire a small business loan.
2. Small Business Accounting Software. Small business software is often easy to use and inexpensive, but it’s important to remember this software is designed for businesses that sell things. The business of law does have some unique processes general business software typically does not support, such as trust accounting. Be sure to look for software that supports both billing and accounting to avoid classic errors like double entries.
3. Legal-Specific Accounting Software. Designed specifically for law firms, legal-specific software provides the tools for the nuances of trust accounting and typically has extra benefits. These include detailed reporting for the metrics every law firm should measure.
4. Legal-Specific Software with Professional Accounting Consultant. Michael Wasco who is also a CPA, says that when small law firms hit a certain threshold, the need for expert accounting knowledge grows. He says law firms with 10-20 attorneys are in an especially daunting position because these firms “have enough revenues to support that kind of expert knowledge, but not enough to really justify it.” He also noted financial thresholds as a time to start considering professional accounting advice. “The bottom line is that once a law firm has $5M in revenues, the nature of the practice changes.”
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The complete white paper is packed with sound and jargon-free advice and would benefit any legal professional considering legal accounting software. It can be downloaded for free with registration.
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