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Year-end planning for lawyers: Focus on your financial data

December 22, 2014 | Peggy Gruenke | Law Practice Management Consultant

Year-end planning: Focus on current clients

So what can you focus on in December to help evaluate your 2014 numbers and plan for a stronger 2015?

  1. Run the accounts receivable report and spend time on collections.

Looking at this past due invoice report, there may be another “oh crap” moment but also a sense of hope. This money, if collected, could be in your next paycheck before year-end and the holiday spending season.

December can be a tough month to do collections and you may be kicking yourself for not having been doing this all year or at least starting earlier. In December, clients are focused on the holidays and upcoming expenses related to gifts and parties. But it is also the time of year when companies give out bonuses. So your client may have an additional source of revenue in December to pay your invoice. Provide a small incentive and consider offering a discount if paid before year-end. If you represent businesses, they are usually looking to pay all their expenses before year-end, so do them a favor and send their bills frequently during December.

Tip: On active cases, bill every two weeks in December but include a letter explaining why the change in your billing process. You are a small business owner. They should understand and respect the fact that you are being proactive and working on your business’ year-end.

Here is an article that contains many more tips about year-end collections. (I can give you a link to an article I wrote about year end collections)

  1. Review what is in your Trust account.

This is a great time of year to make sure you have been diligent about moving money from your trust account to operating account as fees were earned. It also great time to make sure all of your client ledgers are in balance.

Run your Work in Progress (WIP) report and see if there is any time or expenses sitting out there that you can invoice and pay yourself, transferring Trust funds to operating before year-end.

If you have money in client ledgers, run their individual client ledger report and send them a copy so they have a current record of all the transactions during 2014. This is also a great opportunity to stay in touch with your current clients and show them you are on top of things.

  1. Review your 2014 revenue, expenses and budget.

One of my favorite reports to use for this is what I refer to as your firm’s financial tracker spreadsheet that is a combination of the following all in one report:

  • Actual prior year revenue/expense
  • Current year budget revenue/expense
  • Actual current year numbers by month
  • Current YTD actual compared to YTD budget
  • Opening and ending check account balance
  • Profit/loss by month (which is different than the checking account balance)
  • Accounts receivable each month

Cash Flow report for lawyers

So in one report you have a bird’s eye view of your firm’s financials. Once built, it’s easy to maintain and carry over from year to year.

There are many values to using this type of report is many, but here are a few:

  • You can keep an eye on revenue, broken down by practice area or attorney with an easy comparison to prior year.
  • Comparing the prior year actual numbers and current year budget keeps you aware of areas where you may be overspending, underperforming or doing great.
  • Having the opening and ending balance of your operating account lets you see the yearly trends or patterns and if you are starting the month out with less in the bank than you thought you would be.
  • Keeping your accounts receivable on this report let’s you see if this number is growing by the month. It also keeps the need for doing collection work in front of you – this is money being left on the table for one reason or another.
  1. It’s going to be tax season before you know it, so use this time in December to do the following:

  • Look at your account called “Owners Draw” and make sure the entries in this account are correct. These are expenses you ran through the business as non-business related expenses.
  • Cleanout the pile of receipts in your drawer/purse/car and make sure you have properly reimbursed yourself for any business related expenses you paid on your personal credit cards or personal checking account.
  • Review your calendar for appointments and places you traveled that were business related and make sure you have prepared expense reports for mileage.

Peggy Gruenke is owner of LegalBizSuccess, a company whose mission is to help solo and small-firm lawyers build better businesses. Peggy is active in the ABA GPSolo Division, where she heads the technology committee and is vice-chair of the national conference committee. Follow her on Twitter @PeggyGruenke.