Should I Stay or Should I Go? QuickBooks For Law Firms?

QuickBooks is a widely known and used bookkeeping/accounting program, but is it right for your legal clients? Many products designed to meet the needs of specific niches are adding accounting features. This is especially true in the legal industry. As an accounting professional, you may be wondering whether to recommend that clients stay with QuickBooks or switch to a different industry-specific solution. The answer depends on your clients' needs and preferences, as there are advantages and disadvantages to each.

When recommending new software for your clients, the very first step should always be understanding their needs. What information do they need to collect? What reports do they run? What types of billing do they do? All of these are key considerations. If you are recommending practice management and/or billing software for your clients, we all know they can benefit by choosing a solution that includes accounting.

While I will reference QuickBooks, please be aware that the comments apply to both QuickBooks desktop and QuickBooks Online and the features sets as of today.

What are the benefits of a single software solution with integrated accounting?

The most obvious benefit of a single software solution is a single point of entry. Not having to enter information in multiple places reduces the possibility of errors and eliminates the need to reconcile the data between the two systems. Client expenses are less likely to miss being billed if, when entered for accounting purposes, it is immediately marked as billable to the client. Even when systems integrate so that you can enter in one place and have it sent to the other system, there is still a need to reconcile as links are not 100% reliable.

While the integration of two programs can save time, it brings its own issues. Links may break due to computer updates, updates by one program or another, or just bad luck. When the link breaks, you must spend time and energy finding and fixing the problem. There also may be a question of where to go for help, as it depends on which program is responsible for the link. Sometimes one program does an update that is not yet supported by the other. With desktop software, you can usually decide to wait to update until the link is fully supported, but with cloud-based software, you don’t usually have options on update timing. Having a single program eliminates this issue.

Another issue with separate programs is learning. When you have two programs, you must learn two different interfaces as well as the setup and use of the link, if applicable. With a single solution, you must learn the features and functions, but it is one interface. If you have problems or questions, you have one place to turn for support.

While price should not be a deciding factor, a single program is generally less expensive to purchase than two separate programs and is always less expensive to maintain.

When you recommend a single program for your clients, you are recommending a solution that is designed for the legal industry. This can be especially important in the accounting area. QuickBooks is designed for the general user, and while there are features for some industries, the legal industry-specific needs are not well met by QuickBooks.

Other considerations when recommending solutions to law firms

While price should not be a deciding factor, a single program is generally less expensive to purchase than two separate programs and is always less expensive to maintain.

When you recommend a single program for your clients, you are recommending a solution that is designed for the legal industry. This can be especially important in the accounting area. QuickBooks is designed for the general user, and while there are features for some industries, the legal industry-specific needs are not well met by QuickBooks.

Law firms have strict requirements regarding IOLTA/Trust accounting. The firm must not overdraft a specific client's funds and cannot comingle clients' funds with those of the firm or of other clients. The firm must be able to produce reports of all the transactions in a specific client's account and provide a 3-way reconciliation showing the individual client balances are equal to the amounts on the books and the amount in the bank. Legal-specific solutions are designed to handle these needs. While this can be done on QuickBooks Desktop and QuickBooks Online. there is more burden on the law firm to watch the balances and produce the reports. The firm may want to show, or be required by the Bar Association to show, trust balance or activity on the invoice. With QuickBooks, this requires manual entry or attaching a separate report. Legal-specific software is designed to support these functions and includes the needed reports.

Another important function for many law firms is the allocation of revenue. This has two aspects (1) allocation of revenue between fees and costs and (2) allocation of fee revenue across attorneys. QuickBooks has one way of allocating revenue – proportionately. If your clients get a partial payment and want to apply it first to fees and then to costs, there is no way to do this without lots of behind-the-scenes data manipulation. If your clients' billing system allocates the partial payment, be careful to check if the allocation matches the QuickBooks allocation. Most of the time, it does not, which leads to confusion. The same applies to applying partial payments to specific timekeepers.

What about just keeping it simple?

We’ve been talking primarily about accounting, so the question remains: Can you avoid the linking issue and just use QuickBooks for billing and accounting for your clients?

For most law firms, the answer is no. 

QuickBooks does not provide an easy way to set up different rates for different timekeepers on different matters, which is often needed in law firms. QuickBooks also does not allow for multiple types of billing to be associated with the client record. Yes, you can bill a flat fee in QuickBooks, but you must remember that the matter is billed as a flat fee. There’s no easy way to run the bill and have it just pick up the flat fee. Similarly, there’s no way to associate specific bill layouts with specific clients or create LEDES bills if required by your clients.

After reading this article, you may wonder, are there reasons to stay with QuickBooks for your clients? In part 2 of this series, we’ll explore the benefits of staying with QuickBooks.