What is Accounting/Finance?
Accounting and finance software applies accounting principles to law firm operating accounts, client trust accounts, and Interest on Lawyers’ Trust Accounts (IOLTA) — a method of raising money for charitable purposes, primarily providing civil legal services to indigent persons.
Why should a law firm use accounting and finance software?
Accounting and financial software make it easy to record partnership contributions and assets, document firm income, monitor expenses, and report historical and current information on demand. The data input and reporting available in accounting and financial software facilitate preparing federal and state tax forms and make it easy to scale the firm in size and revenue while keeping costs down.
Accounting software stores all data online, in the cloud or on-premises, for easy access, maintenance, and updates by one or more authorized users and administrators. Most accounting software has security protocols that keep data more secure than physical books and ledgers in locked cabinets. Accounting software can encrypt data in transit and storage and back up data to guard against data breaches, ransomware, or other cyber-attack.
What features do accounting and finance software include?
Accounting and finance software integrates with general accounting software such as FreshBooks and Intuit QuickBooks or supports a complete accounting functionality, including general and client ledgers, accounts payable, and trust accounting. Ledger functions should balance journal entries and accounts, chart client accounts, and reconcile bank statements. Accounts payable software should track invoices, maintain client and vendor account information, track cash requirements, and support invoice aging and discounting. Trust accounting should track and reconcile deposits and payments for client trust accounts. Additional features may include payroll processing, billing, procurement, payments, and integrations or connectors to third-party software.
The LawNext directory has numerous tags identifying accounting and finance software features in various sections of the Law Practice Management Tech Center, including Accounting and Financing (Business Accounting, Account Reconciliation, Check Printing, Trust Accounting), Law Practice Management Suites (Billing and Invoicing, Accounting, Contracts Management, Time Tracking), Payment Processing (E-Check Payments, Recurring Payments, Credit Card Payments), and Time and Billing (Time Tracking, Trust Accounting, Insights and Analytics, Invoicing Tools, Automatic Time Capture, Split Billing, LEDES Invoicing, Bulk Billing).
What is three-way reconciliation?
Most state bar associations require lawyers to perform three-way reconciliations of their IOLTA and trust accounts. The purpose is to ensure that your trust accounts are accurate and compliant.
The three items that must be reconciled are:
- The trust ledger, the firm’s internal ledger of trust account transactions.
- The client ledger, showing all trust account activity by the client with whom it is associated.
- The trust account bank statement, which is the bank’s record of transactions.
Often, state bars provide standard templates for performing three-way reconciliations.
Notably, some legal accounting products automate the process of creating three-way reconciliations. When shopping for a product, be sure to look for this as a feature.
How can my law firm benefit from using accounting and finance software?
Focus on client invoices and billing to report accounts receivable and outstanding invoices and increase earnings by determining and focusing on what practice areas bring in the most. You can create consistent rules to collect data on income and expenses to report and save on costs and realize where the business stands at any point in time. You can also integrate accounting software with other third-party software for legal practice management, procurement, billing, and forecasting to improve all aspects of your law business.
Should I choose cloud-based accounting and finance software-as-a-service or an on-premises deployment?
Many law firms have migrated to cloud-based software-as-a-service, where reliability, performance, and security requirements can meet or exceed on-premises resources. Small and midsized companies embrace SaaS to compete with the resources of large corporations. Organizations of all sizes can reduce their total cost of ownership in accounting and finance software by using SaaS.
Web-accessible accounting and finance software has 99 percent up-times in the cloud, where computing resources expand to meet demands, and high-grade encryption, such as Advanced Encryption Standard, is used to transmit and store data that can reside in various global locations to meet data privacy requirements. Cloud software integrates with other cloud and local systems to import and export data using application programming interfaces (APIs).
The user experience from cloud-based accounting software is like on-premises systems, but users get immediate access to the software’s latest features and security updates in the cloud. Using cloud-based software reduces the total cost of ownership. Cloud software requires no capital expenditures (CAPEX) and maintenance on local computers to run the software. It relieves organizations of the administrative burden of supporting, upgrading, and patching on-premises servers.
Consider on-premises accounting and finance software if the firm needs to integrate it with on-premises computer resources or meet stringent client data security and privacy requirements. Although many providers focus on cloud offerings, some continue to offer on-premises deployments, such as HoudiniEsq and Tabs3. Your organization must have sufficient IT budget and resources to support the software’s installation, troubleshooting, and maintenance.
Should I select all-in-one software with accounting and finance functions or an a-la-carte offering of the software?
An all-in-one system has a modular design where all the pieces work together. Many all-in-one law practice management (LPM) suites integrate with accounting software, such as QuickBooks and FreshBooks, and include accounting software. Bill4Time, Centerbase, HoudiniEsq, and Zola Suite offer general accounting and trust accounting with its LPM suites. Time and billing software providers also include accounting tools. TimeSolv features trust accounting with its web-accessible legal billing, timekeeping, and project management software.
Some all-in-one LPM suites offer modules separately or a-la-carte, such as Tabs3 Billing, Tabs3 PracticeMaster matter management, and Tabs3 Financial. The financial module fully integrates with billing and matter management. The financial module meets the accounting requirements of many law firms. You can print financial statements, pay invoices, reconcile bank statements, and manage client trust accounts in an easy-to-use, fully integrated system.
Make sure the accounting features in all-in-one software fit your requirements. If the all-in-one does not suit your every need, ensure it supports an open application programming interface (API) to integrate with other software and service providers. You can also look for accounting services in a single product offering from firmTRAK Solutions and TrustBooks.
How much should I pay for accounting and finance software?
For basic accounting and trust accounting, look to a cost-effective all-in-one LPM suite. Zola Suite’s Core plan, which includes accounting, starts at $59 per user per month. HoudiniEsq begins at $248 per user per year for up to 30 users. But for solo practitioners HoudiniEsq Solo plan, which includes billing, invoicing, and trust accounting is free to download and use on-premises.
A-la-carte accounting and finance software can cost you more than $1,000 per user annually. Tabs3 Financial with general ledger, accounts payable, and trust accounting features start at $1,155 per user (annually). The price includes the first year of maintenance and allows multiple, simultaneous users.
Pricing for dedicated accounting software and services offerings depends on your required features. The full-service accounting offering from firmTRAK Solutions begins at $599 per month. TrustBooks tier one, with bank reconciliation, ledgers, and trust accounting, starts at $49 per month.