When I started my law practice, I knew nothing (maybe less than nothing) about business. I knew how to practice law, I had some idea about how to get clients and how to engage clients, but I had no idea how to actually handle the business side of my business.
I didn’t even incorporate my law practice for the first two and a half years because I got bad advice telling me I didn’t need to do it (I’ll save that story for another day).
I had a bookkeeper and an accountant, but I had no idea how to work with them and mostly just thought that since they were handling all things money related, I could pretty much ignore it.
That was a big mistake. It cost me tens of thousands of dollars in lost money over the years, stuck me with a $100,000+ unplanned for tax bill the first year I brought a million bucks into my law practice, and resulted in many business growth mistakes that could have been avoided if I had been smart with my law business financials.
In the beginning, I didn’t even get financial reports. Then, I did get financial reports, but I didn’t know how to look at them.
Now, I invest 3 hours every month to sit down with my financial team and review the financials for the 4 companies I am involved with.
Each month, we review our P&L for each company, look at overlooked revenue opportunities, possibilities for expansion, and accounts receivable. We look at expenses, ensure they are being categorized properly and tracked so we can ensure that each expense is providing a return on investment (ROI). You want to make sure you are tracking income by revenue stream and tying your expenses to income whenever you can.
And you will want to include your law practice trust account in the monthly review as well to identify when it’s time to transfer money out of the trust account into your general business account and when to return trust funds to clients.
We review our more granular metrics and cash flow reports on a weekly basis. What are the weekly metrics and reports you are looking at?
I’d love to hear how you track your law business financials. Share in the comments.
(Photo credit: Tax Credits)