Taking stock of your accounting isn’t just an end of year task – although it would be nice to only have to do it once a year!
These days, it’s more important than ever for lawyers to be aware of their financial standing and make sure they’re keeping accurate records. Doing a mid-year accounting check will leave you with a solid understanding of where you’re at in terms of financial health, leaving you prepared to make changes at any time – and gives you the added benefit of saving money with your accountant by doing some of the leg work.
Yes, your accountant could do a lot of this. But you’d have to pay a good amount for it. Plus, these are pieces that you really should know when it comes to your firm if you want to make choices that are going to lead to long-term success.
Are you staying compliant with your trust records?
Does your firm have enough funds to weather a significant downturn?
What practice area are most of your profits coming from?
These are all questions you need to know the answers to. To get them here are the areas of accounting you should be looking at.
Law firms are unique when it comes to accounting, but there are some parts that are the same for law firms as most other businesses. To start, you want to make sure you’re invoicing is up to date by invoicing your clients through June 30th. No invoice means no payment. And that means it’s going to be tough to pay your bills and staff.
You’ll also want to run regular reconciliations of all your bank accounts through June 30th, matching transactions between bank statements and your books. Keep an eye out for uncleared transactions, as you may need to take action on them. Depending on your jurisdiction, you might even have to figure out where to send unclaimed assets.
Important: do not – we repeat, do not – ever just enter an adjustment in your accounting software and call it a day. Accuracy is critical. Your license to practice law depends on it. If you can’t figure out a conflict, that’s the time to call your accountant.
Something else to reconcile: your credit card statement. Not only should everything be entered and matched, but you should also make sure that all your client costs are linked to transactions.
Really, you should be on top of your trust accounts and accurate bookkeeping all of the time, not just at mid-year. But doing a check gives you the chance to make sure everything is correct and gives you an opportunity to fix any issues before they become a headache – or trigger a red flag during an audit.
Check client retainer balances and invoice amounts, issuing payments, refunds, and invoices where necessary and you’re permitted to do so. Be sure all your three-way reconciliations are complete and print and archive them. You always want to be audit-ready!
Reporting is good not just for your records and accurate accounting – it also makes sure you’re aware of the financial standing of your firm. Without running reports regularly and checking in, you could have major issues that you don’t know about. Even if they’re not urgent, knowing about the direction the firm is heading in positions you to take proactive steps to redirect or optimize.
For example, if a particular practice area isn’t generating the revenue you thought it was, it may be time to increase marketing efforts, evaluate whether or not to continue offering those services, or do a deep dive for cost inefficiencies.
Here are just some of the reports you should be looking at:
- Balance sheet, including liabilities, assets, long-term and short-term items
- Equity and owner’s draw
- Profit and loss statement, including income accounts and expense accounts
- Accounts receivable and collections
- Client retainer balances
Compare all these numbers with last year. If there’s an apparent change you need to look into why. It could just be an accounting error or it could be a sign of a problem that needs to be looked at – or cause for celebration if there’s significant growth!
Mid-year is a good time to check out where you’re at for the year, in terms of goals, finances, and bookkeeping. You’ll get peace of mind and maybe even some motivation knowing how far you’ve come and where you want to be. Added bonus – you’ll be making sure you stay compliant!
Ready for your financial check-up? Download our complete Mid-Year Accounting Checklist for Law Firms (Canadian firms download here) now and get started!
Ready to make the switch?
Start a 10-day Free Trial of CosmoLex