A c c o u n t i n g S y s t e m s f o r L a w F i r m s : W h a t W o r k s , W h a t D o e s n ’ t , a n d W h y I t M a t t e r s

Accounting systems for law firm : what works, what doesn’t and why it matters   Summarykrisanapong detraphiphat via Getty ImagesYoudidn’tgotolawschooltobecomeanaccountant,butproperaccountingisessentialtoahealthylawfirm.Let’sbehonest:Accountingandaccountingsystemsaren’tthemostexcitingpartsofrunningalawfirm.AsaCPAandtheleaderofanaccountingfirmfocusedonlawfirms,I’lladmit—accountantshaveoftenmadethesetopicsmorecomplicatedthantheyneedtobe.That’swhytherestofthisarticlewillfocusonthefollowing:Thisarticleprovidestipsforselectinganaccountingsystemforsoloandsmalllawfirmsanddiscussestheprosandconsofeach.Generalaccountingtoolsoffereasyintegrationwithfinancialinstitutionsandarewellknownbyaccountantsandbookkeepers,buttheseplatformsrequireadditionalsetupforlawfirms.Lawfirm–specifictoolsaretailoredtotheneedsoflegalprofessionals,buttheyarenotusuallyofferedasstand-aloneproductsandarenotwell-knownbymostaccountantsandbookkeepers.Whensettingupyouraccountingsystem,it’swisetoenlistthehelpofabookkeeperwhounderstandslawfirmaccounting.Jumpto:WhatIsAccounting→TheLegalAccountingTechLandscape→GeneralAccountingSystems→Legal-SpecificAccountingSystemsRecommendations→    WhatIsAccountingAccountingistheprocessoftrackingthemoneythatcomesinandoutofyourfirmandthenproducingthenecessaryreportstostaycompliant.Othersmayoffermorecomplicatedortechnicaldefinitions—oftenfilledwithrules,regulations,anddeadlines—butIthinkit’sbestforustokeepitpracticalandlesscomplicated.Nowthatwehavesimplifiedwhataccountingis,let’sexplorethekeyprocessesandcommonsystemsthatallowyoutoproperlytrackyourmoneyandsupportthenecessaryfilings.TheLegalAccountingTechLandscapeNotallaccountingsystemsarecreatedequal—andnotallwerebuiltwithlawfirmsinmind.Broadlyspeaking,thetoolsfallintotwocamps:Typically,thegeneralaccountingtoolsoffereasyintegrationwithfinancialinstitutionsandarewellknownbyaccountantsandbookkeepersyoumightwishtoemploy,buttheseplatformsrequireadditionalsetuptoensureproperhandlingoftrustaccountingandlegal-specificreportingneeds.Thelawfirm–specifictoolsprovideintegratedworkflowstailoredtotheneedsoflegalprofessionalsrightoutofthebox,buttheyarenotusuallyofferedasstand-aloneproductsandarenotwell-knownbymostaccountantsandbookkeepers.GeneralAccountingSystemsThetwogeneralaccountingtoolsmostcommonlyusedbylawfirmsareQuickBooksandXero.QuickBooksisbyfarthemostpopularaccountingsoftwareusedbysoloandsmalllawfirms.Althoughthisfullyonlineplatformwasn’toriginallydesignedspecificallyforlegalpractices,itsversatilitymakesitwell-suitedtosupportthecoreaccountingneedsofalawfirm.MakingaccountinglesscomplicatedforlawfirmleadersProvidinghelpfultipsforselectinganaccountingsystemforyourfirmDiscussingsomeprosandconsofsomeofthemostcommonaccountingsystemsforsoloandsmalllawfirmsThebestplaceforustostartistodevelopasimpleexplanationforwhataccountingis.Generalaccountingtools.Theseplatformsweren’tdesignedjustforlawfirms,butthey’rewidelyusedbylawfirmsandcanbeveryeffectivewhensetupproperly.Lawfirm–specifictools.Theseoptionsoftenstartedaslawfirmpracticemanagementsoftwareandlateraddedaccountingmodules.QuickBooksPros:Widelytrustedandsupported.QuickBooksisatrustedandwidelyadoptedplatform,whichmeansyourfirmwillhavenoshortageofaccountantsorbookkeepersfamiliarwiththesystemifyoueverneedtobringsomeonenewonboard.Advancedbankintegrations.QuickBooksofferssomeofthemostrobustbankintegrationsavailable,makingiteasiertoautomaticallytrackallmoneyflowinginandoutofyourfirm’sbankaccountswithinyouraccountingsystem.Strongintegrationwithlegalpracticemanagementsoftware.MostlegalpracticemanagementtoolsintegrateseamlesslywithQuickBooks,allowingyoutoautomaticallysharerevenueandexpensedatabetweensystemsandreducemanualentry.Cons:Nottailoredforlawfirmtrustaccounting.BecauseQuickBooksisn’tdesignedspecificallyforlawfirms,itrequiresadditionalsetupandstepstoproperlymanagetrustaccounting,especiallywhentrackingclient    Xeroiscurrentlythesecondmostpopulargeneralaccountingsoftwareusedbysoloandsmalllawfirms.LikeQuickBooks,it’safullyonlineplatformandwasn’tspecificallydesignedwithlawfirmsinmind,butmanyfirmsstillfinditeffectiveformanagingtheirfinances.Legal-SpecificAccountingSystemsNumerouspracticemanagementplatformsincludeaccountingfeaturesordedicatedaccountingmodules.Asthesesystemsgenerallyhavesimilarfeaturesandreceivecomparablefeedback,we’lltakealookatjusttwoofthemforthesakeofbrevity:CosmoLexandClioAccounting.CosmoLexisalegal-specificsoftwareplatformthatcanbeusedasanall-in-onelawfirmpracticemanagementsystem.fundsattheindividualleveltostaycompliantwithlegalandethicalstandards.Separatesystemandadditionalcost.QuickBooksoperatesindependentlyfromyourlegalpracticemanagementsoftware,meaningyou’llneedtopurchaseandmaintaintwoseparatesystems.Thiscanaddtobothyourfirm’sexpensesandthecomplexityofmanagingtwoplatforms.XeroPros:Bankintegrations.Xerosupportsbankintegrations,allowingyourtransactionstoflowdirectlyintotheaccountingsystem.Thishelpsensureyourfinancialdatastaysup-to-datewithminimalmanualentry.Growingaccountantsupport.There’sagrowingnumberofaccountantswhoarefamiliarwithXero,sofindinganaccountantwhoknowsthesystemshouldbefairlyeasy.Integrationwithlegalpracticemanagementsoftware.SomelegalpracticemanagementtoolsintegratedirectlywithXero,whileotherscanconnectthroughthird-partyapps—offeringflexibilityinhowyoursystemscommunicate.Cons:Notspecificallydesignedforlawfirms.Likeothergeneralaccountingtools,Xerowasn’tbuiltwithlawfirmsinmind.Asaresult,additionalsetupisrequiredtoproperlymanagetrustaccountingattheindividualclientlevel,whichcanbetime-consuminganderror-pronewithouttherightsupport.Integrationlimitations.WhileXerooffersbankfeedsandintegrationswithsomepracticemanagementtools,theseconnectionscanhavelimitations.Dependingonyourbankorthesoftwareyouuse,youmaystillneedtomanuallyinputorreconciledatatokeepyourrecordsaccurate.CosmoLexPros:Builtspecificallyforlawfirms.CosmoLexwasspecificallybuiltforlegalpractices,meaningitincludesbuilt-intrustaccountingfeaturesandpresetthree-wayreconciliationreportstohelpfirmsstaycompliantwithstatebarrequirementsrightoutofthebox.Seamlessintegrationbetweenpracticemanagementandaccounting.Ifyou’realreadyusingCosmoLexforpracticemanagement,itsaccountingmodulecanautomaticallyincorporateyourinvoicingdataandmatter-leveldetails—reducingduplicatedataentryandimprovingaccuracy.