In this video, a legal bookkeeper explains which financial statements attorneys should regularly review and why each is critical for understanding a law firm’s financial health. The speaker starts with the profit and loss statement, describing how it shows revenue, expenses, and the bottom line, and notes the need to distinguish cash‑basis invoicing from actual cash collections and to present the data cleanly. Next, the balance sheet is introduced as a snapshot of assets, liabilities, and equity at a point in time, with guidance on explaining retained earnings and distributions to partners. The cash flow statement is highlighted for its role in monitoring liquidity, recommending frequent (even weekly) reviews and billing practices that improve cash inflow. The statement of changes in equity/retained earnings is covered to illustrate how profits are reinvested or distributed. Throughout, the speaker offers practical tips on reporting frequency (monthly, quarterly, or weekly depending on cash flow tightness), overhead cost tracking, and ensuring reports are organized with proper sub‑accounts. Links to a deeper article are provided, and viewers are invited to request more videos.
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This week we're going to talk about the importance of financial statements for your attorney clients from the bookkeeper's perspective. So as a legal bookkeeper, it's essential to ensure that the attorneys have access to critical financial statements that will provide them some insights into their law firm's financial health and their performance. And I'm sure for the most part, if you ask an attorney what financial statement they wanted to get to look at, to review, they say the profit and loss. That's the one they're the most familiar with. That's your income minus your expenses, how much profit has been made in the firm. So it's a real simple statement. It's the one we're the most familiar with. It gives you that snippet of time that you're looking at your records in that fiscal year. So that fiscal year can run the calendar year. Most of the times, the calendar year, but sometimes it can be an odd year depending on the firm. And we're all familiar with this, this report, and it's one that the partners will probably want to review. They might, may want to review this at a level of looking at per partner, and then you could use class tracking if you were going to do that. But it helps them gain insight in their financial health. Look at their revenue, see how much money they made. If they had a financial goal, a revenue goal, they'll be able to kind of compare that to the actual and see where they're at. If they were figuring they're gonna raise their revenue by 5%, 10%, however they're gonna get there, it's gonna give them that. And it's a nice idea to give the attorneys and the partners of the firm maybe a peek at what it was last year compared to this year. Or maybe even if it's a 5-year, if the law firm's been around for a while, let them look at the statistics, the overview of how they did over 5 years even. It's a good thing to look at. Mm-hmm. Most of the time they're going to look at the bottom line, and that's where their eyes are gonna be drawn to, to see how much money there is left over, basically. And a lot of times in their mind, whatever was left over, they assume should be in the checking account, which is not necessarily true, because they could have spent some money on some liabilities to pay things back, and that will affect the bottom line. Also, if they're a cash basis, they may be looking at what their invoicing amount is. But at, in actuality, they're looking at the amount of money collected. So that's a big difference when they start to look at the figures. It's something that you want to really consider giving good eyes on, making sure that everything's in the right order, that there's nothing in header categories. If there's amounts listed below the headers, you want to make sure that everything's in the lower buckets, the subaccounts, and just make sure it looks clean. A lot of times they might want to know what their overhead is for their firm. What's it cost for them to run their firm? And remember, overhead is things like rent, utilities, the work that we do. So those are important numbers that they may want to know. What does it cost to run the firm? The next financial statement that you're going to give the attorney is the balance sheet. And this one might require you to give a little bit of instruction on what exactly a balance sheet is. It's kind of like the— it gives you a comprehensive view of the firm's assets, the liabilities, and the percentage that they own of the firm. So, and it's the equity in a specific point of time But it also can be the equity of the firm from, from, from the beginning, from when the firm was first, first open. They might ask you like, what's a retained earnings? And you should be able to answer these questions fairly easily for them so that they understand what these things and the items that are on the, on the books exactly are. And when you have that conversation, just remind the client that the totals that are in there, so if they look at their distributions as a whole, Make sure they understand that the distributions themselves are money that they've taken out of the firm, but make sure they understand it's just for that year. So it might be this really inflated number, but it's really all the money they've taken out of the firm over time, and that you want to ensure that they understand that that's not that big number. It's just the part that's for the current fiscal year that you're looking at. They might ask you for a cash flow statement, and that's another number that's really gonna show the inflows of cash and the outflows of cash during a specific period of time. And it's gonna give them some insight in how the firm generates cash. It's essential for the firm's liquidity, liquidity, and it ensures financial stability. So they have to know where they're at with cash flow. We've had firms that have even really looked at cash flow overall many times to like on a weekly basis, because they wanna know what's coming in the future, what they're gonna have to pay for, how much money perhaps will be coming in. So those are things you wanna look at. If it's a billing period, maybe they bill a couple times a month. That's an excellent way if you can do that in a firm to kind of bring that, keep that cash flowing in and not doing just once a month. That's just a, a tip that we found that has helped some firms that are tight on cash to get them in a place where they're more liquid in cash. Maybe they have a savings account somewhere that's there for that rainy day fund. Then you can also do a statement of changes. And this is really statement of changes for equity and retained earnings. This statement is going to illustrate how the firm's profits are reinvested or distributed to the shareholders. So how much has been their piece of the pie, basically? And it can be about a specific period of time. It'll provide insights on the firm's financial decisions along the way, especially when it comes to, in regard to retained earnings. So these are really important statements. I've got a few links in the article. We I go more in depth in the article. If you want to look at the article, there's some more links to some other great articles on law firm financial statements that I think will be really helpful and relevant. And if you want to see more videos like this, please reach out. Just add a little comment and we'll, we'll take that to heart and add some more. But I hope this was helpful in giving you some of the most important financial statements that you should be sharing with your client. every month or quarterly. Some of them are quarterly, or maybe sometimes every week in respect to that cash flow, that cash flow report, depending on how tight the cash flow is in the firm. I hope this was helpful. We'll see you all next week. Bye now. Bye.
