What’s Driving Law Firms Away from QuickBooks Online?

The legal accounting environment is in flux and has been changing rapidly. The key trends we are seeing are consolidation and products adding in accounting as an alternative to or replacement for QuickBooks Online.  

In this article, we’ll explore how key legal tech providers are responding to this shift and why more firms are choosing all-in-one accounting solutions. 

Emerging solutions: Actionstep, Clio, and SurePoint 

Several major legal tech platforms are adapting to these changes by enhancing or acquiring accounting capabilities. For example, Actionstep originally offered its own accounting features or the option to link with QuickBooks Online. The company has since acquired Soluno, a powerful billing and accounting platform. Soon, users will be able to enter their time within Actionstep and handle all billing through the more robust, integrated Actionstep Legal Accounting—the rebranded Soluno. 

Clio has long been known for its practice management and billing. They have a link to QuickBooks Online. Now they are adding in Clio Accounting to make the program an all-in-one. Right now, they are really only encouraging Clio Accounting for small firms, but that will change. To make sure they get it right, they even hired a program manager away from Intuit. 

SurePoint, a well-known legal billing and accounting solution (LMS and Coyote), recently purchased ZenCase to offer a practice management solution. Integration cannot be far behind. 

Why the shift toward all-in-one legal software? 

These are but three examples of the evolving accounting environment. Why the focus on all-in-one? Why not keep linking to QuickBooks Online? There are several answers to that question. 

A key answer is mid-market. Small law firms are often happy to use QuickBooks Online either linked or stand-alone and doing double entry for client-related accounting. However, most larger law firms want an all-in-one solution. When billing and accounting are in one program, there is no need to make sure two programs are in balance, do double entry, or worry about compatibility and links breaking on upgrade. Management and reporting are easier. As the current products look to get more into the mid-market firms, integrated accounting is important. 

Furthermore, many small law firms use QuickBooks Online because their accountant or outsourced bookkeeper says they should. Not having an understanding of the pros and cons or feeling that they have to please the accountant or bookkeeper, they use QuickBooks Online regardless of other factors. As firms get bigger, they may bring these functions in-house or have more ability to make their own choices, and then they often choose not to use QuickBooks Online. 

Even smaller firms may become more sophisticated and decide that QuickBooks Online cannot meet their needs. Or a firm that has been a long-time user of older desktop software may decide it’s time to move to the cloud. When they look at transitioning billing and practice management, they find they are going to have to also switch from QuickBooks Desktop to QuickBooks Online. Migration to a single platform instead of two separate migrations and learning curves starts to seem like a good idea. They then want to look at options that include accounting or that offer features they can’t get with linking. 

The limitations of QuickBooks Online for law firms 

What’s wrong with QuickBooks Online for law firms? As someone who has worked with QuickBooks since its early days, it sometimes is painful for me to say, but – QuickBooks is not designed for law firm needs. Unfortunately, nothing has changed in this respect in the 30 years I have worked in this industry. 

The biggest issue in QuickBooks Online (and desktop) as an accounting solution is revenue recognition. Most legal billing software allows for allocation of revenue first to recovering costs and then to fee income. This is important as law firms often carry advanced client costs on the balance sheet. (For some firms this is a choice and in some cases it is required by IRS rules). Reimbursement of costs on the balance sheet first has an impact on taxes and how they measure profitability. Since QuickBooks Online only allocates revenue proportionally, the revenue reports from the billing software and the financial software do not match without extra work. All-in-one software designed for law firms generally allows control of allocations. 

Why IOLTA accounting matters 

Another very important issue for law firms is IOLTA accounting. Very simplified, the IOLTA account holds money that belongs to the firm’s clients, not the firm. It is critical that this money be carefully tracked and all funds must be tied to a specific client. The firm cannot overdraw any individual client’s IOLTA account nor the account as a whole. Issues with client funds can lead to disbarment. While it is possible to track client funds in QuickBooks Online, there is no enforcement and reporting is more difficult than it should be. With accounting software designed for law firms, the process is secure and reporting is easy. 

Should you consider supporting all-in-one platforms? 

Should your firm be looking at all-in-one? Should you be looking to support clients that want to choose this route? If you are focused on the legal niche, you should be evaluating the options to decide what you want to support. I can’t say where things will settle or what will happen next, but I think we will see continued consolidation and more features in all-in-one.