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The Financial Reports you Need

The Financial Reports you Need

21st June 2016487Views
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We all want to get the greatest value for each dollar we spend, but with legal financial systems, as with many other things in life, less is often more—especially for solo and small firms. There are some basic reports that you will most often want to generate. As long as a system will provide this information, it will likely be more than adequate for your purposes.

Balance Sheet

This report is a “screen capture” of a moment in time. It shows all of the things your practice owns (assets) and all of the things it owes (liabilities) on a stated date. The difference is your equity, or ownership interest, in the practice—and ideally you own more than you owe.

Income Statement

This report covers a set period of time, such as a month, a quarter, or a year. It shows how much money (revenue) your practice brought in during that period and how much went out (expenses). Subtract expenses from revenue to reflect net income for the period. Compare consecutive periods to determine whether your revenue is increasing or decreasing over time.

Actual Billing

This report shows the dollar amount that was billed during a given period and should reflect write-offs and write-downs. If you see that you are consistently working more hours on a particular type of matter than you can justify billing, seek ways to systematize this type of case to save some time and reduce your cost to provide this service. This report should also reflect the billing goal you set for the period and the difference in your actual and budgeted numbers, which you can use to help stay on track to reach your yearly income goal.

Actual Collection

This report shows all billing revenue actually collected during the stated period against what was billed out. Obviously, the closer you get to collecting 100 percent of what you bill within thirty days of the bill going out, the better your cash flow will be. Low actual collection indicates poor screening of clients for willingness and ability to pay.

Work in Progress (WIP)

This report involves time that has been logged but has not yet been turned into bills and sent to clients for payment. The WIP report lets you know whether you have sufficient billable hours in the pipeline to support your practice over the upcoming months and also alerts you if work is being done but bills are not being prepared and sent promptly.

Unbilled Disbursements

This report gives you information on the funds that you’ve advanced to further a case but have not yet billed the client for or reimbursed yourself for from cost deposits held on behalf of the client. Unbilled disbursements are essentially interest- free loans that you are making to the client, and you want to keep them as low as possible.

Accounts Receivable

This report shows everything billed out to clients but remaining unpaid, broken down by how long the bills have remained unpaid, usually in categories of current (thirty days or less), sixty days, ninety days, and over ninety days. Since any unpaid fees over ninety days old are unlikely to ever be collected, this report can be a warning to tighten up your client screening and selection process.

Funds in Trust

This report shows the status of any funds you have in trusts. You need a good system for accounting for funds in trust for a couple of reasons. First, trust accounting is an ethical obligation and can cost you your law license if not done correctly. Second, funds in trust for future fees and costs represent a source of money that you can tap as soon as work has been done. If you are actively working for clients who have low or no funds in trust, this report will alert you to contact them to get an additional fee or cost advance before proceeding further.

Make sure before buying any financial system that it will meet your state’s trust accounting regulations.

 

Establish and Maintain a Successful Solo Law Practice
This post was adapted from the Law Practice Division’s publication Flying Solo: A Survival Guide for the Solo and Small Firm Lawyer, Fifth Edition. Whether you’re thinking of going solo, new to the solo life, or a seasoned practitioner, this guide provides time-tested answers to real-life questions.

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