When it comes to small law accounting there are two management styles. The old familiar way and the better way.
“People tend to shy away from accounting,” says Certified Public Accountant, Deborah J. Schaefer. “But all you have to do is follow the money.”
The trouble is, solo and small firm attorneys often get stuck in old comfortable patterns. There are even attorneys who still use paper files to manage their law firm financials. We call this the shoebox accounting method.
Then there are those who’ve graduated to using spreadsheets to manage their financial information. While spreadsheets are a major upgrade for managing finances compared to the shoebox method, they typically require attorneys to run and generate numerous reports, which is not only time-consuming, but has the potential to create inaccuracies.
Finally, there are attorneys who rely on off-the-shelf accounting software to manage their accounting needs. Admittedly, these solutions are far better than the first two options, but they still tend to lack the customization attorneys need to properly manage their solo and small law practices.
If the end goal is to follow the money and do it as effectively and responsibly as possible, attorneys need to consider tools that address their very specific legal accounting and reporting responsibilities.
The brutal reality is, failure to properly manage sensitive client financial information can carry serious professional and legal ramifications for attorneys. Here are a few ways legal-specific accounting software can alleviate the burden:
- Worry-Free Trust Accounting. Attorneys who have trust clients are required by their respective state bar associations to meet special requirements for how they manage and report Interest on Lawyers Trust Accounts (IOLTA). Unlike generic software from the big-box business store, legal-specific solutions are designed to help attorneys prepare clear and detailed IOLTA reports which they must submit to their local state bar association.
- Flexible Billing Options. Just as no two attorneys are exactly alike, no two clients are either. Perhaps some clients prefer being billed on a flat-fee basis, while others are charged by the hour. Legal-specific software can help attorneys produce any type of invoice based on the needs of their clients. While it may seem like a relatively small gesture, something as simple as customizing an invoice to a client’s billing preferences goes a long way in showing them they are valued.
- Insight into the Bigger Financial Picture. If a firm has more than one employee, chances are the founding attorney needs help understanding where exactly the firm’s revenue is coming from and how funds should be allocated. Whether payments are allocated by client, by biller, by responsible attorney or even area of practice, legal-specific accounting tools can help manage, track and report on all this information. This is especially helpful when issues related to fee allocation arise because they can be easily resolved. In addition, timekeeper productivity related to hours worked versus hours billed and collected can be easily tracked in these systems. Work-in-progress (WIP) reports and expenses can also be factored in. These insights are invaluable because they provide a more complete picture of an employee’s total productivity. Legal-specific accounting solutions can also keep track of operative accounts and accounts-receivable which not only helps track the firm’s overall hard costs, but also the more elusive client soft costs as well.
- Greater Security. When it comes to security, there are two basic issues that need to be addressed: granularity and mobility. Granularity refers to confidentiality issues. In other words, attorneys should be able to establish specific security measures to make sure confidential client information stays that way. Whether billing rates need to be hidden or attorneys need to put security walls up between departments, the right tools can help manage these allocations. Mobility, on the other hand, makes it important for attorneys to determine how remote data can be accessed and entered, and what permissions will be required to do so. The right software can do all of that, plus monitor all remote activity and produce comprehensive reports on it, as needed.
Good financial reporting, adds Ms. Schaefer, should help attorneys see how the firm is making money and help them better manage the back-end of the business.