When you open a new business of any kind, you’re going to get some things wrong, but you’re also going to get some things right. One of those things is setting yourself up with a suite of legal accounting software, designed specifically to help law firms manage their complicated finances.
Consider your hiring options. You could employ a bookkeeper, who can record and organize your financial data, and outsource your accounting, which has more to do with interpreting data to provide guidance and advice. You could employ an accountant. You could outsource your bookkeeping and accounting. All of which are viable options.
You need to do what is best for your fledgling law firm. The person best suited to give you advice is … an accountant, preferably a specialized accountant for lawyers who is familiar with the industry and who can get you started on the right foot. That means ensuring your financial records are fully compliant with state and national laws from the get-go.
8 Key Tips For Setting Up Successful Accounting Systems:
If you need more food for thought, we’re going to look at eight great tips to help you choose the best accounting software for your law firm.
1: Determine The Accounting Needs Of Your Law Firm
When you’re just starting out, it’s difficult to tell what your accounting needs are. It helps if you have a mentor or someone in the legal business who can sit with you and hammer out some essential details. If you don’t have a mentor or professor you can turn to, it’s a good idea to start here:
- How big is your law firm; what do you envision, initially?
- How complex do you anticipate your financial transactions to be?
- What are the legal and regulatory requirements of a firm your size?
- What payment types will you accept?
- How will you track billable hours?
- What do you consider “business expenses”?
- Do you need financial planning and forecasting tools?
- How much automation do you require?
This will give you a rough idea of your needs and the degree of financial support and management you require.
2: Choose The Right Accounting Software And Tools
With an idea of what you need your accounting software to provide, you can start looking at the options available. It’s always wise to consider scalability. You might not envision a firm with five full-time attorneys, five legal secretaries, a receptionist, and a couple of interns now, but it might be on the cards.
One of your priorities should definitely be ease of use. You should be able to use it, your receptionist should be able to use it, and in a pinch, your future interns should be able to use it. If they can’t, you should be able to explain it. If you don’t think that you can explain it to someone else, maybe look for a vendor that includes training in the package.
Other points to consider include:
- Compliance. It must adhere to legal and regulatory requirements that govern law firms.
- Integration. It must be able to integrate with other tools, systems, and other software you’re likely to use.
- Security. It must provide high-tech, top-notch, up-to-date data protection and security. The very nature of your job relies on confidentiality or data security in the digital world.
Your sensitive financial details will be there, and so will some of your clients’, you cannot change all of that on the cheapest vendor you can find. Spending more, it will be worth it.
- Customer support. It may be easy to use. It may come with training. But there will be a time when you will need customer support and you need to know that you will get it and can trust it.
That’s where a company like Lescault & Walderman comes in. You don’t have to do all of the work yourself, you can trust our law firm bookkeeping and accounting software to help you maintain control over your finances and financial goals.
3: Establish Clear Financial Policies And Procedures
If you start smudging the lines when you start your law practice, it will be very difficult to stop later on in your career. Start with good intentions and follow through. This means that you must establish clear financial policies and procedures and instill a culture of transparency and accountability from the minute you first open your professional door.
The law firm accounting software you choose will help you by setting up features that facilitate regulatory compliance and efficient financial management. Establish a culture of transparency and accountability when you develop your policies and procedures. For example:
- Develop an expense policy that defines guidelines for allowable expenses, expense approval processes, and reimbursement procedures.
- Implement billing policies for client billing, including billing frequency, invoice formats, payment terms, and follow-up procedures in the event of unpaid invoices.
- Create a financial record-keeping policy that defines the standards for maintaining accurate financial records, including documentation requirements, filing systems, and retention schedules to ensure compliance with legal and regulatory requirements.
- Implement financial controls to safeguard assets and prevent fraud, including segregation of duties, regular account reconciliations, and periodic financial audits.
- Provide ongoing training and support to ensure that everyone understands and adheres to the policies and procedures.
- Regularly review and update policies to ensure they remain effective and relevant and are always in alignment with changing business needs and regulatory requirements.
4: Designate Roles And Responsibilities For Financial Management
While no one likes a tyrant, people do like some structure and delineation of duties. It enables people to take pride in what they do and to be held accountable for their actions in their role. When it comes to people who work on the finance side of your law firm, you need to be especially clear about roles and responsibilities. This includes anyone who has access to sensitive financial information.
You might want to consider the following points:
- Clearly identify an overarching financial manager or CFO. This person must be qualified and have the strength of character to stand firm in the role. They’ll be responsible for all aspects of financial management, including accounting, budgeting, and financial reporting.
- Establish a finance team that includes staff capable of managing billing, invoicing, accounts payable and receivable, payroll, and trust accounting.
- Define partner responsibilities. Each partner should have a clearly defined role to play in the operation of the law firm. Roles include decision-making, budget oversight, and client-billing review.
- Delegate administrative tasks, including data entry, bank reconciliations, and expense tracking. Ensure all staff are properly trained and have the guidance and support they need to successfully fill the role.
- Establish reporting protocols that include the definition of the reporting structure and the frequency of financial updates. Ensure each person is able to provide accurate reports when needed, which will play a role in financial decision-making and monitoring.
5: Create A Chart Of Accounts And Use It Consistently
A chart of accounts is a structured list of all accounts that record financial transactions. It might evolve with your law firm but essentially it’s used to record financial information accurately and in a transparent manner.
A great deal of thought goes into how you define the accounts and sub-accounts. For example, primary categories could include:
Each account is assigned a unique code, which helps categorize and identify the accounts. Sub-accounts refine categorization, for example, expenses can be broken down into sub-categories that include:
It’s good business practice to align your categories to subcategories with industry standards. You can model your structure on suggested templates or base them on established guidelines for law firms. It’s convenient and logical to use systems that are similar to industry standards. It helps with legal and financial compliance, for instance, as it relates to tax audits.
6: Integrate Billing And Accounting Systems
Considering that you’re right at the beginning of your career, it’s relatively safe to assume that you’re still setting yourself up, which means you haven’t quite sorted out all of your software systems. Now is a good time to start in the manner in which you intend to go on.
Look for software that integrates seamlessly with whatever products you’ve already installed. Ensure that the processes coordinate well and that the transfer of information is relatively straightforward.
7: Establish Internal Controls
At this point it’s a good time to establish some internal controls, particularly regarding your cash flow. What you’re looking to protect against is fraud, financial data breaches, and opportunities for financial misappropriation. This is essential to protect the integrity of your young business.
Segregation of financial accounting duties and implementing approval processes for expenses and payments are a priority. Don’t underestimate the importance of internal controls to protect client funds while maintaining compliance with legal and regulatory requirements.
8: Conduct Regular Reviews And Audits Of Financial Performance
One of the best ways to ensure transparency and reduce the risk of in-house fraud is to regularly review the firm’s financial health and one of the best ways to do this is through internal audits.
It’s recommended that you perform bank reconciliations at least once a quarter, but aim for once every one to two months. It’s a good way to check if the recorded transactions are reflected in the bank balance.
Other benefits include:
- Identifying errors and discrepancies
- Ensuring ongoing compliance with regulatory requirements and professional accounting standards.
- Financial health assessment
- Monitoring internal controls
- Better decision-making, especially regarding resource allocation and goal setting
- Maintaining investor and stakeholder confidence
- Continuous improvement
Conclusion And Final Recommendations
Always start as you mean to go on, so good habits are instilled throughout your firm from the moment you first open your doors for business. This is important regardless of your firm’s size. The principles apply just as much to a small firm of two as to a larger practice of 10 or so lawyers.
If in doubt, document it. Although when it comes to the law, you should document everything as a matter of course to ensure everyone concerned is on the same page and to cover yourself in case the situation goes pear-shaped.
One of the best things you can do when setting up shop is to choose good software packages from reputable vendors. This includes software specifically for law firm bookkeeping and accounting. If you’re not sure what is good and what is not, take a look at Software Advice, a website that provides reviews of various cloud-based software providers and their products.
Sage Intacct is one of the world’s leading ERP software providers, with a particular focus on accounting software. Our solutions offer scalability, so you never have to purchase additional software when upsizing or downsizing. Features and functions ensure you always have quick and easy access to data whenever you need it, no matter where you are.
Easy integration with other systems, including sales, inventory, and operational management provides convenience while giving you a comprehensive view of your firm’s financial status.
Choosing the right accounting software for your law firm can be daunting. Let LWI help you make the best decision or follow the guidelines provided to navigate the process on your own. Set your firm up for success with the right financial tools and expertise.