Shopping for an Accounting System
Sometimes shopping can be fun. However, for many lawyers, looking for an accounting system may be as enjoyable as a root canal. Recent circumstances have pushed firms into looking for a new accounting product, and looking for a new product can be intimidating and frustrating. The good news/bad news is there are a lot of options for law firms but few shortcuts for due diligence when considering a new product.
What Is Accounting?
Many firms use a timekeeping and billing system. It may be part of a practice management application, or it could be a stand-alone product. Time and billing systems help attorneys and timekeepers track and record time, track expenses related to a matter, record trust balances, generate invoices and track collections. Most of these products allow for some trust account tracking, by showing trust balances and allowing trust monies to be applied to a bill. Accounting is rarely included in practice management applications. Accounting features include general ledger, bank integration and reconciliation, check writing, accounts receivable, accounts payable, expenses, chart of accounts and more to help with both the firm’s business and client business. Some accounting applications have payroll modules, forecasting and reports such as profit/loss and tax.
Bookkeepers record financial transactions and keep the accounts balanced. Accountants analyze, interpret and summarize financial data. While managing a trust account, three-way reconciliation and keeping a close eye on the trust balance is essential from an ethical perspective. An accountant can help with taxes and forecasting. The systems you have in place can help both the bookkeepers and accountants to collect, store and export the information needed to do their jobs successfully. Get their input when choosing accounting software.
Should I Stay or Should I Go?
Many law firms have been told that the product they are using for accounting will no longer be supported and that new versions will have a significant price increase. For example, QuickBooks Desktop is being discontinued and users are being told to move to QuickBooks Online. Pricing for QuickBooks Online has increased. Some legal software that includes full accounting is reaching the end of life and may no longer be available.
Migration Issues
If your firm moves to a different accounting product, migrations are not simple. Often the fields do not match up so a conversion script needs to be written and you will need to check to make sure that data has transferred from one system to another. If you are using older unsupported software the conversion may require multiple upgrades to migrate, even to a new product from the same company. You will want to keep your old accounting product running and backed up while you test the new system. Make sure the data has been transferred appropriately. If the old software was customized this will make migration even more difficult. Try to extract data into spreadsheets, print invoices and reports to PDF and keep screenshots of important information.
You will want to establish a cutover date when you start using the new accounting package. While you should keep the old system running, make sure no one in the firm is doing any new work in it. This needs to be well communicated, as people will default to what they know and may not be aware that adding or changing information in the old system will not update the new system.
If you can get help from someone outside the firm––the vendor, a consultant or accountant––in addition to your team, that will help reduce the burden. Sometimes in the zeal to sell you a product, salespeople may underestimate the effort it takes to migrate. Work with a migration expert to understand what you need to do and how much your team will need to do. Ask about time frames and get it in writing if you can. At ABA TECHSHOW 2023 a product called Universal Migrator won the Startup Alley competition for new products. The product helps with migrating data and is designed for consultants and migration teams. It is worth looking at whether they have a migration path already established.
Shopping Guidance
To be a savvy shopper, first look at the tools you use and who uses them. Ask them to document what they like and what they don’t like. Often a firm, when shopping for new software, will insist on doing things simply because that is how they have always done them. Try to establish whether some of these processes can be changed, or if they are truly requirements. Make sure that everyone in the firm who touches your current system is consulted on the decision-making process.
When you consider pricing, sometimes the price per user may be lower for bookkeepers and accountants, or sometimes even free. You still have options including on-premises (server) software and SaaS (software as a service). Software pricing tends to be a perpetual license based with maintenance and support fees annually. Licenses may be for named users, or capped at the number of users who can be logged in at the same time. It is also common for premise-based software to offer subscription plans that cover per user licensing, support and maintenance. Most SaaS licenses include maintenance, support and upgrades along with the user fees. While they are labeled as “per user, per month,” many vendors are trying to establish multiyear contract terms.
To do an apples-to-apples price comparison, firms should look at total cost of ownership and return on investment. Total cost of ownership requires that a firm look at what is needed to support a program––Servers? Backup costs? Maintenance and support? Migration? Integration? Onboarding fees? Training fees? Consultants? There is a lot more to the cost of software than a per user, per month dollar amount. Track all the costs, with a five-year expected spend, to get a sense of the true cost to a firm. When looking at the return on investment consider if the product will help reduce administrative efforts, increase efficiency, provide insights and data to make better business decisions and more.
The Marketplace
Many products can help law firms with accounting. Some are specifically designed for law firms and may be a stand-alone product, an additional module to a practice management application or built into a practice management product. Other accounting applications are developed for small or even large businesses, with some legal specific add-ons or a focused structure for professional services businesses. The following list is not exhaustive and is focused on solo and small firms.
Legal Accounting Products
Tabs3, a ProfitSolv company, has a suite of products that include Tabs3 time and billing, Practice Master practice management and Tabs3 Financials. Financials has modules including trust accounting, accounts payable and general ledger. This suite of products is on-premises for Windows only. Pricing is quoted per user, per month, or you can pay a traditional license fee. A new SaaS product, Tabs3 Cloud, will integrate financials, time, billing, trust accounting plus a client portal.
Soluno is a legal accounting company based in Toronto. The cloud-based product has banking, trust and general ledger, invoicing and accounts payable. The pricing is per user, per month, with a pricing discount for “occasional” users. They integrate with many legal practice management products, Microsoft 365 and payment processors. Soluno was recently acquired by Actionstep.
TrustBooks is primarily designed to help manage compliance with trust accounting. There are three pricing tiers available for this SaaS product, with tiers two and three offering additional accounting features like operating account management, balance sheets, profit and loss reports, tax reports and client funds. Tier three adds additional user roles and reconciliation and reviews by a certified accountant. There is also an optional onboarding fee for any tier. TrustBooks integrates with Clio, LawPay and PracticePanther.
CosmoLex started as an all-in-one SaaS practice management application in New Jersey. They then became part of the Tabs3 family, and subsequently part of the ProfitSolv product line. CosmoLex provides practice management, time and billing and legal-specific accounting including trust management. It includes built-in payment processing. The price listed online is $89 per user, per month billed annually, with tiered pricing with firms over 10 users. They have additional products for CRM, websites and e-signatures.
Formerly Zola Suite, Caret Legal is self-described as focusing on the mid-size or larger firms. This SaaS product includes practice management features, CRM, time tracking, billing, accounting and payments. They provide reporting and analytics, three-way trust reconciliation, settlement allocations and more. While pricing starts with Enterprise, there is a tier for smaller firms that includes built-in email and complete trust/business accounting.
AbacusLaw was acquired by Caret Legal. It includes “full” accounting functionality and payment processing, as well as practice management features, document assembly and customizations for many practice areas. It can be self-hosted (on-premises server) or hosted in the AbacusLaw private cloud as a desktop solution.
A sophisticated SaaS practice management application, Centerbase builds in firm accounting, online banking, trust accounting, advanced reporting, as well as document management, project management, workflows, matter management, time tracking and billing and CRM features. Pricing available on request.
Actionstep is a SaaS product that, with the PracticePro+ plan, has general ledger accounting, banking, AR/AP and financial reporting built in. The product also has client intake/CRM, matter and case management, workflow automation and document management. Actionstep has a global presence, with offices in the United States, UK, New Zealand and Australia.
Brief Accounting started as a Mac billing product but is now available for Windows as well. Time entry, prebills, invoicing, accounts receivable, trust and office accounting, check writing, reporting and more can be purchased as stand-alone modules (Brief Billing, Trust and Office Accounting), or as an integrated bundle. The product has been on the market since 1985 and is based in Vancouver, British Columbia, Canada.
If you are a MyCase user, there is a fully integrated accounting module you can add to your existing account. It includes three-way trust reconciliation, bills, profit/loss reporting, performance, general ledger, expense tracking, check writing, and more. Not every user will need MyCase accounting, and the fee is an additional $39 per month per accounting user.
Nonlegal Business Accounting
Many solo and small firms use QuickBooks for accounting. QuickBooks recently announced that they will no longer support QuickBooks Desktop software and have increased their prices. However, it is the software that many lawyers will choose or stay with because it is widely used and understood by bookkeepers and accountants, and it integrates with a wide range of legal and business applications. It must be set up to handle trust accounts, or integrated with a product that tracks trust monies. It integrates with Clio for practice management and payment processing; Gravity Legal for payments; and LeanLaw for timekeeping, reporting, invoicing and trust account management.
A newer entrant into the small business accounting scene, Xero has a low price point. It has no features for tracking trust accounts natively, focusing on paying bills, claiming expenses, bank connections, bank reconciliation, payment processing, invoicing and tracking project costs. It integrates with many other products, including Clio and firmTRACK for key performance indicator reporting.
Zoho Books tracks expenses, generates bills, reconciles bank accounts, tracks billables, creates invoices, provides a customer portal, has payment processing and more. It is not designed with legal in mind, it integrates with Zapier, Microsoft 365, Google Workspace and more. The Professional version costs $40 per month per organization (five users).
FreshBooks offers invoicing, expenses, time tracking, payments, reporting and accounting. Accounting features include chart of accounts, profit and loss statements and “trial balance.” In the Premium product tier ($27.50 per month), the product has payment processing, recurring billing and client retainers. FreshBooks has an AppStore, with Clio integration, as well as other business tools.
Sage, the company behind Timeslips, has an accounting product. It is not designed for lawyers, though it has a professional-services focus and offers “automated bank reconciliation.” It is cloud-connected desktop software and can handle invoices, bill tracking, receivables, payables, banking and more. It integrates with Microsoft 365 and costs $578 per year for a single user for the Pro plan.
Remember, if your firm plans on taking trust money via credit card you must have a way to keep operating and trust accounts separate, including any fees or charge backs. Many of the payment processors that are not specifically designed for legal professionals should only be used for earned fees (operating), if at all.
Whether you are solo, a small firm or a midsize firm there are a lot of options for accounting applications. Weigh the pros and cons, total costs, and list non-negotiable features. Seek help from consultants, accountants, your office manager and others to help you make the best decision.
©2023. First published in Law Practice Magazine Vol. 49 Issue 6 November/December 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.