Refresh Your Law Firm’s Goals
Summer is upon us. You know what that means (other than 100 degree weather)? Our year is halfway over. Now is the perfect time to review your law firm’s financials, celebrate your wins, and readjust if needed.
Remember six months ago when you set your goals for the year? Are you on track to reach them? Let’s look at where you can improve. If you didn’t set goals, let’s think about what goals you want to set for the rest of the year.
Either way, we’re here to help you gain clarity on your law firm’s finances and confidence in your legal accounting.
1. Review Your Goals
Before you dig into what actually happened during the first half of the year I recommend reviewing the goals you set at the beginning of the year. Think about why you set the goal and what impact reaching your goals can have on your business and on your life. Remember, our life runs our business, not the other way around.
2. Bank Accounts
Verify your bank accounts have been reconciled in your accounting system. There’s no reason to review your income and expenses if there’s a chance your bank account is off. It’s a good practice to make sure your accounts are reconciled every month in order to correct inaccuracies. Review your bank reconciliation report, look over the outstanding checks to see if any should be voided or reissued.
I also recommend looking at the checks that have cleared your bank. Many banks will give images of cancelled checks with the bank statement. Look through these checks to verify they are valid expenses and have the appropriate signature.
Although these steps can be boring or tedious, it’s important for you to keep an eye on the money. Turning a blind eye is how law firms can be taken advantage of. Being proactive will help prevent this.
3. Analyze Your Balance Sheet
Let’s be honest. How often do you look at your balance sheet – or even know what one is? My guess is not very often. But you should. Your balance sheet is even more important than your profit & loss statement. Here’s why… if your balance sheet is not correct then your profit & loss statement cannot be correct, and then you’re just looking at wrong numbers.
Having a clean balance sheet is the difference in having a bookkeeper and a GOOD bookkeeper.
Your balance sheet will tell you how much cash you have, how much your clients owe you, your investments, as well as what you owe to your vendors, and to others. It’s important to keep an eye on all of those to help you plan big purchases as well as monitor cash.
Looking at your balance sheet compared to a past date in time can also be helpful. You can start to see where your cash is going and if your company is growing financially over time.
These are areas we help our clients with on an ongoing basis.
4. Analyze Your Profit & Loss
Once you verify your balance sheet is correct, look over your 6 month Profit & Loss statement. Is revenue on track for what you were expecting? If not, what can you tweak to hit that number? You’ve got 6 more months to get there!
You’ll also want to review your expenses to see where you’re spending money. Does anything need to be adjusted or are you on target?
Now, look at your total expenses for the 6 months and divide by 6. This gives you your operating cost per month on average. This number tells you what you need to bring in in order to break-even. This is also a good metric for determining how much cash to keep in the business. At least 3 months would be ideal.
5. Uncle Sam
Should you be making quarterly estimated tax payments, and if so, are you? Not only is it never a good idea to get behind with the IRS, making these payments will help with your overall cash flow. You’ll know you won’t have to come up with a large check on April 15th if you’ve planned well and worked closely with your CPA.
I remind clients that it’s a good thing to owe taxes. That means you are making money! Taxes are only a percentage. My job is to help you pay the least amount that is legally possible. There are lots of tax planning opportunities but most can only be done ahead of time, and with good accounting.
6. Take A Look At Your Calendar
This is probably the area that no one looks at but it’s important for you to see where you’re spending your time. Is it all on client work, prospecting, or managing the law firm? Or perhaps you’re spending too much time on networking events that aren’t producing a positive ROI.
Time is the commodity that you can’t get more of and can’t get back once it’s gone. Be careful how you’re using it. You should be spending the majority of your time on high dollar outcomes, not administrative issues and other tasks you can outsource (like your accounting).
Start. Stop. Continue.
Once you’ve been through all of the areas above, take a sheet of paper and make 3 columns. Label them Start, Stop, and Continue. Use this tool to make notes for your mid-year review. Look at what you need to change and make better, what you should stop wasting time and energy on, and what’s working well.
Aligned CPA helps solo and small law firms. We’d love to talk with you and see if we would be a good fit for your firm.
Joy Lutz, CPA, CTP
I help business owners keep more money in their pockets by implementing proactive tax strategies. I promise you, working with a CPA and Certified Tax Planner can be much more exciting than crunching numbers and reviewing last year’s taxes.