Five Reasons Attorneys Should Ditch Spreadsheets

By Lynda Artesani

Even if we spoke about lawyers just starting their practice, a spreadsheet is not a good ideaneither for case management nor accounting. If you’re reading this, you most likely agree. Allow me to bring some clarity to this. 

#1 Using a Spreadsheet is NOT Scalable

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A  spreadsheet sounds great at first. It’s as if you have the software already.  You know how to use it, and it helps you stay organized. But quite quickly, as you start to grow, it will become unmanageable.

As your client list expands, the spreadsheet widens. I’ve seen some creative methods of tracking trust with a spreadsheet. The most common practice is to have an overview page with the monthly ending balances and separate tabs for each open client matter. 

There will be an overview page for each month. There will be a column for the retainer deposits, a column for client expenses, and a column for legal services on those separate pages. The lawyers tend to tally this across the pages. And then manually type the month-end balance on the overview page. Typically the balance should equal the balance in the bank statement at the end of the month, adjusted for any transactions in transit. Soon, you will find that this becomes a rather long and messy document and no longer serves your needs.

#2 The Data Dump Spreadsheet 

Using a spreadsheet to track the accounting is not popular, but I have seen attorneys attempt this. Usually, it is done as an afterthought. The tax professional reaches out and asks for the accounting for the law firm, only for the attorney to realize they have been managing their firm by their checking account and credit card statements. To quickly get the details to the tax professional, the lawyers dump their banking from their bank’s website to CSV and then sort it for tax purposes. Sounds reasonable, right?

In my accounting practice, I have seen some strange bank feed transactions. Some I have had to exclude. Duplicate entries. How do you know that the bank feed data dump is accurate if there is no monthly bank reconciliation? And again, this lends itself to an unruly spreadsheet. One that the tax professional will have to understand and most likely charge you more for, owing to miscategorization because you did not have a standardized chart of accounts.  

Additionally, with this method, you are running your firm blindfolded. It is not real-time data when you push a year’s worth of transactions onto a spreadsheet.

#3 Manual Methods Are Expensive

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Have you noticed from these two paragraphs that these processes are very manual? The attorneys have told me they implement this plan using spreadsheets because it’s less expensive than purchasing the accounting software. But if an attorney charges $250, $350, $450 an hour, is it less costly than buying software? Yes, the software has value, but it’s less than $200 a month, even the most expensive software. When you add the automation bank feeds, you’ve now taken a task that takes a couple of hours a month to 30 minutes or less if you use bank rules. It is simple to see that manually entering figures into spreadsheets is time-consuming and time is money.

#4 Manual Processing Equates to Potential Errors and Missing Data

Any manual process is open to steps and procedures, hence, errors. What if you miss a step in the workflow? Ignoring a step can lead to more time creating the entries and balancing everything at the end of the month. Missing an entry and missing a client cost that should be billed back to your customer will also cost your law firm.

In my professional experience, the trust balance page is rarely aligned to the trust bank account. While keeping this overview page on the spreadsheet may seem nice, you must ensure it equals the bank account balance. What is the balance in the trust bank account? Does it equal the balance on the cover page? Would this spreadsheet stand up in a bar audit?

And what about tracking billable time? How is this being collected? Are they being handled on another page in the spreadsheet to be invoiced back to the client?  

I recently spoke to an attorney who was quite proud that he did not pay for accounting software, and then he tracked all his time in a spreadsheet. He told me he diligently wrote out each time entry manually, then handed it over to his admin to ‘cut and paste’, or as I like to call it, arts and crafts, with the billing. The admin would cut and paste these time entries onto his invoices. I asked him if he had a method to ensure that all of these “pieces” were billed. When I asked that question, he had that ‘deer in his headlights’ look on his face. He very carefully answered, “How would I know that?” And, that’s precisely the point.

Suppose an attorney misses a few hours per month, i.e., they forget to capture them on an invoice. Not so great for the law firm, right? Missing time equates to missing earned income. You’re decreasing your profitability!

Let’s face it; attorney billing has some complexities to it. Managing this in simple software such as excel can be a daunting, manual task. One misstep in the workflow is costly. It can be exponentially expensive at tax time. Any time you ask a tax professional to dig through your spreadsheet and make sense of it for your tax return,  you’re asking to be charged extra money.  

Download each document in its ‘native’ form to be completely transparent about the data entered. Add the use of filters, hidden columns, or formulas that can be erased easily. Is this a format for providing good financial data? And will this stand up for a bar audit? The lawyer needs to be diligent with the processes here.

#5 Spreadsheet Security

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I have spoken to more than one partner at a firm that has had some fraudulent activity in a checking account or data breach. Where are these crucial spreadsheets being held? Do you have some document protocol in place for who is allowed to view these critical documents? Storing this information in multiple locations or drives is not a good practice. Remember, this is sensitive data and should be handled as such.

Many people start with spreadsheets because they believe they are inexpensive and easy to work with. But down the road, as your firm grows, you’re compelled to contact a firm like ours to help you pull all that data into an accounting platform. I can tell you this is an expensive undertaking. Isn’t it better to start fresh with clean records? And be proactive instead of reactive?

I hope the five tips above help you reconsider the spreadsheet method of accounting and tracking trust. Technology is here to help you to follow it with ease. It is worth it to start on the right foot using the right tools to carry your firm into a profitable, successful, and compliant future.

Adopt technology for your business today using our guide on choosing the right law firm accounting software.

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