In Focus Resource Center > Insights

Three Ways Law Firms Can Overcome Accounting Challenges

By Michael Zyborowicz, Melissa Davis .

Law firms face a distinct set of accounting challenges compared to other industries, from meeting specialized billing requirements to managing partner equity. These obstacles require a different approach. In order for your finance function to thrive, you need people that have experience with legal billing formats (LEDES, hourly, fixed fee), robust weekly (rather than monthly) reporting, and integration of technologies that can bridge the gap between accounting and case management platforms.

In this post, we will explore the key accounting challenges facing law firms today and the tools you need to set up a strong financial foundation that will allow your firm to overcome these challenges and thrive.

Challenge 1: Timely and accurate billing

Timely billing remains one of the biggest pain points in the legal industry. From getting hours submitted on time, to generating accurate invoices in the correct formats, these seemingly routine matters can be an ongoing headache.

One key challenge is simply finding the right staff to manage it. Amid the current finance and accounting talent shortage, it is difficult for firms to find qualified personnel who have experience with the variations of legal billing formats.

While specialized firms that just do legal billing now exist, these services are typically a Band-Aid solution, not a cure, to law firms’ profit growth strategy. A legal billing firm only focuses on billing and may not understand the importance of a seamless connection between the case management system, the accounting enterprise resource planning (ERP) system, and reporting outputs, making it difficult for them to see the whole picture.

Solution: Ultimately, law firms need to build out a finance and accounting team with an understanding of the specialized formats and technologies used in the legal profession. These personnel should be able to not only build processes to support timely submission of hours and generate accurate billing, but also support the traditional monthly accounting processes that result in month-end financial deliverables to help firms make proactive business decisions. This does not necessarily mean hiring more full-time staff — law firms can also focus on upskilling existing staff or bringing on fractional experts via a full-service outsourcing solution to help them achieve these goals.

Challenge 2: Managing partner equity and tax compliance

Another key challenge for law firms is tax compliance and partner equity allocations. Unlike other kinds of jobs, the financial results of the law firm partnership tie directly into a partner’s income and the associated individual income tax effects. Since many firms operate as partnerships, the partners are not compensated as W-2 employees. Instead, they receive distributions which pass the tax liabilities from the business onto its partners. These partnership distribution arrangements can be complex and require detailed recordkeeping and reporting to adhere to the guidelines set forth within partnership agreements.

These complexities put pressure on the law firm’s accounting function to provide up-to-date reporting so partners can track their equity and get accurate projections to assist with quarterly and year-end individual tax planning. This is easier said than done, as many law firms are only tracking financial metrics on a firm level, with partner equity reconciliations being done on a quarterly or annual basis. If a partner asks for a report on their equity (which they are entitled to do at any point) or decides to exit the firm (which often requires a valuation), your finance team may be left scrambling because the reporting is out-of-date.

As an added complication, rules about how individuals’ income tax calculations vary by state. This can make it even more difficult to create accurate estimated income tax projections, especially if the partnership’s client base and/or employees’ locations are spread across geographies.

Solution: Having a mature finance and accounting function in place where finance is tracking metrics on a weekly or monthly basis allows partners to check actual results against their budgets and forecasts and to understand whether the business is performing as expected in real-time. This also enables partners to understand their current equity status, prepare accurate tax projections, and remain compliant for tax purposes.

Challenge 3: Connecting all your technology

Similar to other highly regulated industries, like healthcare, law firms have a need for a high level of data security and privacy. There are strict rules and regulations around how data can be stored and transmitted and, as a firm, you may need to meet certain data requirements to work with specific clients. However, if your firm is working in unsecured duplicate systems or your case management and accounting systems don’t talk to each other, this can result in security threats, inaccuracies of data and errors.

Many law firms rely on case management and billing systems such as MyCase, LeanLaw, Clio, TimeSolv, Juris, and others. Often, these case management systems operate independently of the firm’s accounting and general ledger system — causing data disconnects that can lead to errors. Systems that are not integrated also cause inefficient processes that lead to wasted time on rote tasks. Even in situations where the case management system offers an accounting system module, many teams are not using it effectively to generate financial reporting that would help teams make proactive financial decisions.

Solution: Finding skilled individuals who can select and manage technology that integrates seamlessly between case management, timekeeping and accounting/reporting functions. You also need industry experts who can implement efficient processes to improve and manage all accounting and finance related functions (including ERP platforms, reporting, and tax benefits) so your data remains secure, accurate, and reliable, while creating efficiency though streamlined processes.

Outsourcing is the most efficient way to meet your accounting and finance needs

If all that sounds like a tall order, you are not wrong — but you do not necessarily need to fill all these finance needs in house. Working with a full-service outsourced finance provider like Citrin Cooperman is the most efficient and cost-effective way to meet your firm’s finance and accounting needs. We bring in professionals who have deep industry knowledge that your firm can access for the amount of time needed at a lower cost than hiring full-time staff.

Citrin Cooperman’s Business Process Outsourcing Practice and dedicated Law Firms Industry Practice can provide you with the specialized guidance needed to help your business thrive. Our personalized approach begins with an assessment of your firm’s processes and technologies and customized recommendations. We then provide the support of our team of industry professionals to implement and operationalize these recommendations. Goals we can help your firm achieve include an accelerated month-end close, more detailed processes and reporting, and regular forecasting — all of which will enable you to better manage cash flow, maintain a clear picture of partner equity, and optimize your profitability in the long run.

Please contact Melissa Davis at or Mike Zyborowicz at to discover how outsourcing can help your law firm overcome your current finance and accounting challenges and fulfill your firm’s full potential.

Our specialists are here to help.

Get in touch with a specialist in your industry today. 

By your submission of information in this form, you are consenting to our collection, use, processing and storage of your information in accordance with Citrin Cooperman’s privacy policy. If you have questions regarding our use of your information, please send an e-mail to