In the final instalment of our guide to practice management systems, Charles Christian assesses the benefits of using computerised accounts as opposed to the manual variety
Cynics could be forgiven for thinking that the only real difference between a plain vanilla solicitors’ accounts programme and a law firm practice management system (PMS) is the price; however, there is actually an important distinction.
Accounts software, as the name implies, is primarily a bookkeeping tool. It ensures that client and office monies remain separate, it complies with the solicitors’ accounts and deposit interest rules, it will prepare legal aid bills in accordance with the requirements of the Legal Services Commission, it will look after time recording and disbursement postings, and it will help your firm keep on top of all the other financial and administrative red-tape modern legal practices have to contend with today.
While small firms, with low volumes of business, could conceivably still cope with a manual system or one based on spreadsheets, even a sole practitioner with a half-way decent practice will find that a computerised accounts system removes much of the hassle associated with maintaining accounts.
If you use a part-time legal cashier, you may find having a computerised system also reduces the amount of time they need to spend looking after your books, which is a saving that can help offset the cost of the system. But, as mentioned in the first part of this feature (see [2004] Gazette, 11 November, 24), small firms and start-ups should always give serious consideration to the option of totally outsourcing their accounts work to a bureau service.
However, there is one important drawback with the standard accounts system: while they are good at keeping your ledgers balanced and in order, they are less effective at providing you with the type of more complex management information you need to run a modern legal practice.
Admittedly, for sole practitioners and smaller firms this is not such a big issue, as the scale of their operations means they can still keep their finger on the business pulse of the practice – they know who their clients are, they know what work they are doing for them and they also know when the cheques come in.
But, once a firm expands to a point where it has multiple equity partners, specialist departments and branch offices (which can be everything from a mid-sized high street firm upwards), then along with pure accounts data, it also needs management reports, profit and loss accounts, budgets and earnings forecasts.
The breaking point for many firms is when the partnership realises that its practice manager or head of accounts is devoting more and more time putting together (typically via spreadsheets) monthly management reports for partners’ meetings and spending less time on running the practice. It is at this point that firms will usually want to either replace or upgrade their accounts software and move to a full-blown PMS.
The key difference between an accounts system and a PMS is that the latter can produce, frequently automatically or at the push of a button, a range of reports that take the raw accounts data and convert it into meaningful information that can be analysed and interpreted by partners and managers, and then provide the foundation for informed decision-making.
Consider the following questions. Should you retain your network of branch offices or consolidate your operations? Should you continue handling certain types of work, such as family law or legal aid work? How much fee-earning time is written off? Who are your best clients – both in terms of gross fees and the speed with which they pay your bills? You may be getting a lot of business referred to you by a claims management panel or a mortgage lender – but just how profitable is it?
The answer to all these questions lies buried in your accounts records but with a modern PMS you can start digging through this information – the phrase often used is ‘slice and dice’ – to get at the answers. And, it is not just to the big questions, such as ‘is legal aid work profitable?’, but also down to an individual fee-earner and matter level, so you can even compare the performance and profitability of different lawyers carrying out the same type of work in the same department.
You may also find the answers are not always what you expect. For example, several firms have found to their cost that they have seriously underestimated the time it takes to handle a residential conveyance, a road traffic accident claim or some similar fixed-fee work and, as a result, are making much narrower profit margins than they originally anticipated. Other have found that while a move into commercial practice might generate bigger fees, it also involves bigger overheads (particularly if they have had to head-hunt staff from a City firm) and that it would have been more profitable (if not so glamorous) to have invested in IT systems to support one of their volume practice areas instead.
Accessing this level of information is therefore not an academic exercise but a necessary step to take if a firm is to is decrease its reliance on guesswork and move towards informed decision-making.
Selection strategies
When it comes to the decision of whether or not to upgrade or replace an accounts or practice management system, there are several factors to consider. There is the issue of timescales – is your present system adequate both for your current needs and your future anticipated needs? In other words, if you are planning to expand or move your practice in new directions, you could soon outgrow your present system and need to replace it.
Alternatively, it may be that although you have a relatively pedestrian system, it has been designed in such a way that it is possible to enhance it through the addition of management information and key performance indicator reporting modules, that automatically generate the type of information your practice manager spends days trying to produce.
Several vendors of integrated systems for high street and commercial practices now supply this option, which does offer the attractive benefit of allowing you to grow your existing system without the disruption of moving to another product or another supplier.
There again, it may be that your current system meets both your present and anticipated needs, in which case – on the basis that ‘if it ain’t broke, don’t fix it’ – stay with that system and use your IT budget to invest in other forms of office automation that will help increase productivity and profitability. My view is that given the choice, it is better to spend money on systems that will help you earn more beans, rather than on systems that merely count the beans.
There is also the issue of your own staff and resources. For instance, some larger firms will inevitably be attracted to the idea of going with the more complex ‘best of breed’ practice management systems from the likes Thomson Elite, Aderant or, if they are very big, SAP. These are excellent systems but you do need a good finance director or management accountant to help with their initial set-up and to make full use of the information they produce. You will also need some in-house IT staff to help implement them.
If you lack these resources – and realistically there are probably only 150 to 250 firms in the whole country that possess them – it is probably safer and cheaper to opt for one of the many ‘integrated’ systems available.
Similarly, there is no point investing in a practice management system (whether best of breed or integrated) that can produce sophisticated reports if there is nobody in your firm with sufficient business and financial management acumen to interpret these reports correctly, and/or with the determination and influence to do something about the information they contain.
For example, a frequent problem in firms of all sizes is partners voting themselves generous drawings each year, on the strength of increased turnover, when the underlying trend of rising costs and falling profit margins would suggest they should actually be drawing less and ploughing more back into practice development.
So, if you are going to invest in a new practice management system – as distinct from sticking with a traditional accounts package – be prepared to also invest in the people, skills and time needed to make maximum use of the information they produce.
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Charles Christian is the editor of the Legal Technology Insider newsletter
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