Bookkeepers and accountants can help law firms understand their finances by mastering P&L, balance sheet, and cash flow statements, then translating those numbers into a narrative attorneys actually want to hear. Focus on three key performance indicators tailored to each firm's practice area, use QuickBooks Online tools to visualize data and project earnings, and always do a three-way reconciliation to ensure accuracy.
Chapters
This week we're going to talk about maximizing financial insights for attorneys, and we're going to dive into the different reports that we can provide to them so that we have a way to let them know how their business is doing, and then help them plan for the future. So it's a way for us to help empower our attorney clients. So the most important thing for you to do, if you're just starting out, is to really understand the financial statements and to be able to convey that to the client. Don't be surprised if the client is a little bit apprehensive at this point or this juncture that they, they don't feel real comfortable in a financial strategy or business type of conversation. It's not their strong point. Attorneys live in a world of words. Numbers can kind of be a little overwhelming for them. So just know that that's part of what makes them great clients because they don't really— Right. Want to do what we do. And I think that's the biggest part of it. And it's really important that we can help our attorneys understand and develop financial insights so they can— we can help them improve their firm's financial health. And the easiest report to start with is the profit and loss statement. So the P&L or the revenue statement, those are the ones, those are the ones that the attorneys really want to see, and their eyes go right down to that bottom line to see, how am I doing this year? Am I Am I— do I have a loss? Am I operating at a loss? Am I operating at a profit? What is my profit? Maybe you run it for the year to date and show them per month, month over month how they're doing. So it's an important report. It captures all the income and the expenses. If you're working with the attorneys, really take a look at that. If they're cash basis, give it to them in cash basis so they can kind of see where they're going to be at the end of the year. Most of them do file their tax return on a cash basis. You can also give them accrual as well. I always say that we live in an accrual type of world. I mean, there's accounts receivable, there's billing. So it's good for them to know where they're at with their accounts receivable as well. You gotta really help them look beyond that bottom line, look beyond that to kind of look at the historical trends, compare accounting periods prior period to current, and do a deep dive in the analysis to help them see where there may be some growth opportunities. And maybe it's just evaluating some of the metrics that are there, um, find those KPIs. What would be something beneficial for their practice area to look at? Kind of look at the list of KPIs and decide like 3, the top 3 that would be beneficial for your client. It could be different with every client. So know that you just need to understand their business, where they're at in their firm, and where they're at in their journey, and decide how you're gonna go forward with that. The next report you want to provide them is the balance sheet. Now, the balance sheet, you really have to talk to them because they're gonna really need to know how much they've taken for distributions. And then make sure when you capture that information, you let them know that this balance sheet is like the health of the company overall from the very minute it opened its doors to date. When you see large numbers in distributions or contributions, shareholder contributions, you're gonna understand that that's been the compilation over time. It gives you a listing of the assets. They may have website as an asset, or even office furniture, things of that nature, any property or equipment. You're gonna see that on that part of the sheet. And that's the kind of money that you've— the things that you hold in the business. Then there's also the liabilities. You have any loans. Your liabilities are also your trust liabilities. You owe clients some work for the money that you're holding in the trust account. You'll have that there. And then there's the equity. So the equity is the, the money, the amount that is— it represents the owner's interest in the law firm. And it's calculated by the difference between the assets and the liabilities. And it also includes retained earnings. So the money earned or lost year over year. So it also includes any capital money, any money invested in the building, in the, in the business. So those are all parts of the, the balance sheet. So I like to call it like the pulse of the business where you're getting that snippet in time with the profit and loss. This is really where the business is at overall. A third report you may want to provide a client, and I, I hesitate to add that report in unless there's an issue with cash flow. I would keep it to the 2 reports to start, and then kind of build into the cash flow report, and the cash flow is going to give them the inflows and the outflows of money coming in and out of the business. How liquid are they? You look at the operating activities, the cash generated by the firm, core business operations, and it includes any cash receipts from clients, any cash payments or expenses. So you're looking at that. It's also gonna have some investing activities and some finance activities. So that section on the finances is going to cover any money that's been borrowed any repayment of debts, issuing equity is also on that part of the file. And it's all of that is detailed written out in the article that is attached to this. And you also may want to look at your KPIs. So again, like we mentioned earlier, KPIs, you might find a couple, maybe marketing is one. I— Or attorney profitability, depending on the size of the firm, you might wanna look at that overall. There's a lot of different insights you can take. And look at for an attorney's records. But make sure that you help them to understand and interpret that data that you're collecting for them because it's sometimes partly a process that for many of us is— it's difficult to convey. They may want to have 15 KPIs and just tell them, no, we need to stick to 3 and we can swap them out. But you really want to target them. to really fine-tune and finesse that. I know that I've seen different attorneys want to really track everything and it's really not necessary. It's not going to tick the needle forward. So know that that's a big part of the work that we do is we kind of guide them through this whole process. And those financial statements and reporting is really important. I like to create the management report in QuickBooks to present to the client a really beautiful— with a beautiful presentation, the reporting that they are needing per month. Try to analyze some of the, some of the metrics in there, whether it's payroll or wages. You wanna really get some of those numbers nailed down. QuickBooks Online Advanced also has forecasting where you can help. It will help you create a forecast for the client. You can talk to them about how much they wanna make next year, more than what they were making, and help guide them to get to that point. And it also will allow you to create a budget based on that forecast. So it's very cool. There's other metrics you can track inside of QuickBooks Online Advanced as well. In their Performance Center, there's a lot of different tracking boxes that you can kind of go in and look at the cards and kind of change them around and do some tracking there. If your client goes into QuickBooks, most of ours don't, but you do have that ability to show them that, especially if they're solo, they may be in their QuickBooks all the time. So having that set up that way is really gonna be helpful to them. Do you have any questions or comments? Please feel free to reach out. This is a great topic to really study and understand how we track these things and how we make their life easier. Of course, the pinnacle of our work is that 3-way reconciliation. They need that for compliance purposes. Don't leave that one out. That's a big part of the work we do, reconciling and, and making sure all the funds are tidy and wrapped up nice— nicely for your client. So on that note, we hope you all have a wonderful week. We'll see you all next week. Bye now.
