Best Financial Statements for an Attorney to Review

Hi there, Linda Artesani from Artesani Accounting and The Proper Trust. Today we're going to talk about what's the best financial statements for an attorney to review. We're at that time of the year. By now you probably have submitted everything to the tax person, but as you start to look at your year ongoing, you want to ask your bookkeeper to provide you with some of these reports. So you have a good feel about how your business is running. So of course, everybody knows the profit and loss. It shows the income, and it shows the expenses for the firm. You get a good bird's-eye view if your chart of accounts is set up properly of your overhead, what it costs for you to run your firm. You probably want to take a good look at wages. You might even want to do a comparable profit and loss to take a look at prior periods. So last year in March and this year in March, so you get a good look at where you're at, what's the differences, what's the difference in your income. You can have a profit and loss comparison report that will give you— it can be set up and designed in QuickBooks to show the percentages so you can see if you're increasing your sales or if they're going down. So it's something that all partners in a firm should really have a good understanding of the profit and loss and what your financial obligations are for paying overhead like salaries and rent and other expenses that are involved in your overhead. Most people take a look at this and their eyeballs go right to that bottom line. They wanna look at where am I at? Did I make a profit? Another thing you might want to look at too is not just the profit and loss comparing it from March of 2022 to March of 2023, but perhaps you wanna look at, at the business as a whole for the year. So you want the whole total, but you wanna break it out by January, February, March. You're looking at that first quarter. So that's another good gauge of kind of looking at where your business is in the line. And is there any changes in business? Has it increased or has it decreased? So this is a good way to look at your figures in that kind of a format. The next one, of course, is the balance sheet. I think this is probably the most misunderstood statement, and attorneys very rarely ask to even see this statement. I think it kind of scares them. I know I've had many conversations where somebody will look at their distributions and they'll say, I didn't take that much money. They don't realize it's an entire for the entire scope of how long the business has been open, not just a snapshot of that year. Although you can open up that transaction and look at just what you've had for the year. It's a good way to look at, do you have any loans on the books? You wanna look at the trust account, of course, that trust bank account and then the trust liability accounts. Those should align. You want to compare different periods for sure. Just like with the profit and loss, you wanna look at different periods, look at where your firm's financial position was in '22 and then look at where it is today and kind of get a gauge of that as well. It can really give you some good insight on the firm's growth, the firm's stability, and the firm's overall performance. It's also a place that you can— a report you can run to look at the firm's value, look at your ownership stake as well. So you look in that equity section to take a look at where you're at with your equity in the business if you have multiple partners. Obviously, if there's one, the equity is all yours. Take a look at that retained earnings too, but we'll get to that in a second. The next report, and this one is pretty crucial if you have cash flow issues. We're talking like a personal injury firm. They definitely have floods of money when they win matters, and then they have this long drought of no, you know, they're working on the cases and nothing's come to fruition. So you really want to have a good cash flow report. Shows the firm's inflows and outflows of money. And You can set it up for a specific period. You can really sit down and gauge, do you have any big expenses coming up? And you plan for it. That's why this cash flow statement is so critical to a firm running well, the business operationally running well. It's a good statement for all the partners to look at in a detailed view to look at where's the money coming in and where's the money leaving. It's really an important report that I think sometimes gets missed. It will help the partners look at how much money is actually— how fluid or liquid is the firm, how much money's in cash. So you want to look at that as well. Look at how many loans are on the books. Look at the credit cards. Look for any potential financial risks that the firm may have. It's just important to look at the balance sheet for sure. It's a— it's— I always like to say it's kind of like the pulse of the business. You want to take a look at that report. And then, of course, there's a statement of changes in equity or retained earnings. Retained earnings is where at the end of the year all of that income or loss that's sitting on the books will go into retained earnings so that you start the year fresh. 2023, you're starting fresh with zero balances in those income and expenses. And that's the really the meat of what the business earns. So if you had a profit of $10,000, that $10,000 would go into retained earnings. Now, if there's multiple partners, you want to kind of state out those accounts. and zero out the one that's with retained earnings. That's automatic in QuickBooks. It's, it's a good report to have so you can see how much you have invested in the firm, especially if there's multiple partners. You get a good handle on the financial profitability of the law firm as well. So those are really important, important statements to look at. And I think that sometimes we all get really busy working in our businesses that we don't work on our business and making sure that you ask your bookkeeper or your accountant that works on the file that tell them you want these reports every month. We try to get them to everybody around the 12th to the 16th, depending on holidays and, and the like weekends. But we try to get them all out. And of course, inclusive of that is the 3-way bank reconciliation. If there's trust, we want the client to have that report so they know that their books and the liabilities and the trust account are balanced. So I hope you enjoyed listening to this short video. It kind of explains it. I've got a detailed blog post below that's going to explain it in more detail for you to understand all these really important reports. Having a trusted advisor, a good bookkeeper, will help you understand them, will help you track things. And of course, you can get into more, more depth if you start to track KPIs. Let's say A personal injury firm would want to look at marketing because they have to spend a lot of money to get the business to come in. Look at where that business is coming in. So it's another thing you could look at and get some reporting on. On that note, I hope you all have a wonderful week. If you need assistance, it's— we're just a phone call or a contact sheet away. And don't forget to hit the subscribe button to see more of these videos. Bye now.