Hard Costs & Soft Costs



Hard cost (Direct) and soft costs (Indirect), I guess I should have included them in my list of terminology that you need to know when you work with a Law firm. But this post is about how LeanLaw works and handles these two items.  

Soft Costs

 I’ll start with the easy one, soft costs. Soft costs are indirect expenses the law firm pays for overall, but a portion could be used on a client matter. A good example is postage. The firm may purchase a roll of stamps to be used on envelopes to mail out bill payments for the firm, but also it could be used for postage for client matters. A few other examples of soft costs are faxing, copies, internet, and research fees. That’s just a few, but you get the idea.

What’s cool about Lean Law is as you get these expenses and enter them into QuickBooks, you have no way to delineate exactly which stamps are for the firm’s postage and which ones are to be billed back to a client. You are most likely not going to count stamps. You can just take the method of creating a generalized fee for postage. Many firms will put a price of $10 for any postage to a client. Here’s the process to enter them to be billed back to a client:

Start by creating a template and list of the soft costs that you bill back to a client or matter.

  • Determine a price point for each.
  • Pop into Lean Law and hit the + under the expenses tab.
  • Select from the template the expense you want to add to a client file or matter and tag the matter.

Yes, it’s as simple as that. Once you have implemented the steps outlined above, this is what happens behind the scenes: The expense will get added as a temporary expense to be billed in LeanLaw. In QuickBooks, it doesn’t show at all. Think of it as non-posting. Like an estimate, it doesn’t affect the accounting until it’s billed. It won’t appear anywhere except for the expense you entered for the purchase. In the pictures below, you will see what happens when you enter a bill or a check behind the scenes in the transaction journal in QuickBooks.

Hard Costs

Examples of hard costs are filing fees, witness fees, deposition fees, etc. that the firm would pay by check, debit card, or credit card.

These items would be entered into QuickBooks via receipt bank or Hubdoc or directly using the receipt capture in QuickBooks. You code it to the Advanced client cost account and tag the matter or client name. Once entered, like magic, it gets synced via the power of LeanLaw. 

The advanced client account is an asset account. It is a balance sheet account. When the invoice is generated, the firm will recoup the funds once the invoice is paid. There’s no income or expense transaction like a soft cost. 

In the video above, you will see how you set this up in LeanLaw in the settings. It’s important to be sure that this is mapped correctly. As in any app, it all comes down to settings. Incorrect settings can make a mess of the books.

In the graphic below, You can see the differences between the two costs.

I hope the graphic helps you visualize exactly how these two costs are handled within the application, LeanLaw.

Data Migration

On a side note, the soft costs in the hard costs are handled a bit differently when we do a data rebuild. When we take someone off of one accounting system, like a PC law, and move them to QuickBooks, we start at the beginning of the fiscal year. When we rebuild the data, we use an account called billable expense income and billable expense, that is offsetting the income account. We don’t want to put fees that have been billed already into the client's advanced cost account.

Workflow Tip

One more point regarding the client's advanced cost account, it has to be reconciled monthly. If you have expenses that come in after the matter is closed and the attorney determines that it does not need to be recaptured or invoiced, you have to account for them and move them out of that asset account. Otherwise, it’ll stay there in perpetuity.