Show Me the Money: The Top Four Financial Reports Essential for Every Law Practice

Show me the money! It’s a classic line from the movie Jerry Maguire for a reason. A partner in a small or solo law firm may be surprised to learn where your money comes from and where it’s all going, which is a really important detail of your business.

Keeping track of your firm's finances is crucial to understanding its performance and setting yourself up for success—legal know-how is not enough by itself. For law firms, financial statements are not just about numbers; they're a required tool for strategic decision-making.

Here are some common mishaps that my clients have uncovered when reviewing these top four reports:

• Misjudging profitability: Some clients thought they were making a profit in a particular area of their business, only to discover that it was actually a significant drain on their resources due to time and expense.
• Delays in payment: Clients figured out that late payments disrupt cash flow and make it difficult to manage expenses.
• Overlooked invoices: In some cases, clients had not been invoiced for services rendered, leading to lost revenue.
• Unused subscriptions: Many businesses pay for subscriptions that are no longer used or needed, resulting in unnecessary expenses.
• Decreasing invoices: A decline in monthly invoices can signal that clients may be considering other providers. In such cases, it's important to proactively reach out and conduct a client check-in to address their needs and maintain the relationship.?

By taking a look at the following financial reports regularly, you may be able to save yourself money, become more aware of how your business is performing, and cut waste.?

A case study—when things go right

“When I first came to Renee and reviewed these top four with her, I couldn’t believe how much I learned. I couldn’t believe that I had been failing to send invoices out to several clients and that others were really late on their payments. Just getting that information was hugely helpful to my bottom line!” -Name Withheld

Here are the top four financial reports that I believe you MUST review at least once per quarter:

1. How much $$ did I make this year?? (Your profit and loss statement)

This report shows how profitable your firm was over a period of time. It outlines your revenue, expenses, and net income.?

2. How much $$ do I have? How much do I owe? (Your balance sheet)

A balance sheet offers a snapshot of your firm at a specific point in time. It outlines your assets (what you have), liabilities (what you owe), and equity (the owner's stake).

?3. Who owes me $$? ( Your accounts receivable report)

An accounts receivable report provides a detailed overview of outstanding invoices and client payments. This report can help you identify slow-paying clients, implement collection strategies, and improve your cash flow.?

4. Other People’s $$.? (Trust account reconciliation)

Regular trust account reconciliations ensure compliance with ethical and legal requirements. Failing to reconcile these can (in worst-case scenarios) lead to disbarment and business closure.?

By reviewing these reports monthly, or minimally per quarter, you can gain valuable insights into your firm's performance and make informed decisions about your finances.

To schedule a consultation on any of the above, reach out. I’d be happy to help you. You may be surprised by what our partnership can do. My job is to protect you professionally, save money for your bottom line, and help you grow your business!?