Sarah Prevost walks attorneys through the financial statements they need to monitor law firm health: P&L reports, balance sheets, and cash flow statements. She covers reconciling trust accounts, cutting costs like unused software, and using QuickBooks forecasting tools to set revenue targets and track progress.
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Are you an attorney that's a little intimidated by financial statements that you get from your bookkeeper? Or maybe you don't get any and you don't even know where to begin, and you're just kind of poking around QuickBooks trying to figure out what's the best ones. Well, this video is going to take you through a little tour of what you really need to— I'll let you know what you really need to guide your way through. Obviously, the number one one that everybody wants to see is profit and loss. That's that snippet of time in a, in a fiscal period. So 1 year's time looking at how you're doing in the firm. I recommend doing a profit and loss for the year. So we're in the month of May. I'd like to see January, February, March, and April, because that's all been reconciled and balanced, and do that per month. So you do the whole first quarter plus a month, and then do it monthly. So you can see the months and how they're doing, and kind of compare month over month. And I also like to do, for example, since this is— I'm talking about April, you could show April of this year as opposed to April from last year. So run that profit and loss comparative report. And that one— and this is all in the article that's with this video— that one's really going to give you a picture of where you were last year, where you are this year. If you've got a budget, you could run a budget versus actual report. If you've done some forecasting, there's a forecasting button now. If you're in Advanced, you can forecast your firm's future track. And you can also create budgets off of the forecasting, which is really cool. And so that's really what you want to look at. And then if you're thinking about where you wanna be or what you'd like to move towards, everybody has a targeted goal for their revenue. Put that in the budget, figure that out so you can kind of look at how you're going to see if you're gonna actually get there. It's a good action to take to really start to track and take the time to look at it. We get so busy in our worlds that we don't have a lot of time to really analyze our own records. And that's— it's really something we should consider doing if we want to really financially track the health of our business. You wanna look at places that you could save some money. The easiest ones are take— taking a look at your software costs. See if you're paying for software you're not currently using, cancel those. That's definitely a place. If you're paying a large amount of rent and your lease is almost up, maybe look at finding a different place to rent that's lesser. a lesser amount, maybe smaller if you need to downsize. A lot of people are working from home in a hybrid space, and they don't need as many offices they had as, as they had pre-pandemic. The next report that I think is a good one to look at is the balance sheet. Don't be intimidated by the balance sheet. Most attorneys either don't ask for a balance sheet or they don't really understand the balance sheet, and it's very intimidating. So the balance sheet's kind of like the I like to call the balance sheet really the— it shows the firm's assets, it shows the liabilities, and it shows the equity in the firm. And it's the true picture of the firm over all the time it's been open. So you'll see balances in there that are gonna grow. They don't close out at the end of the year. So know that when you're looking at maybe your distributions and you see a giant number in there, and you kind of go, oh my goodness, where'd that come from? It's only that one year's space that you really need to look at, and you really want to look at those numbers. Because that's what you're going to be paying your estimated taxes on, along with other pieces. But you want to look at how much you've been drawing out of the business and making sure you make timely estimated tax payments as well. We're already now in the second quarter, and you're working towards what you'll be paying at, at after June 30th. So start to look at that and try to figure out what's going to work best for your firm and try to plan that out. Don't be pulling it out as needed because you need money for something. You want to really be thoughtful about the process of taking distributions. There's also— you want to take a look at payroll liabilities. Look at those numbers, make sure there's no negatives on the balance sheet. Those are kind of red flags if something's not correct. You want to look at anything there that's maybe not stated properly. If you're using an outside platform like Augusto or something like that, you might see that if the journal entries aren't ported in. So that's another place you want to look at, make sure that's looking good. Obviously, you want to collapse the trust account liability account and look at it against the balance sheet. bank balance to make sure that those are the same number at the end of the month. That's gonna help you figure that out. Also run your third-party software, whether it's LeanLaw or Clio or MyCase, and take a look at those— that software and make sure that that report matches the balance in the bank and the balance on the liability account. That's your 3 ways you wanna make sure that that's done. You also wanna have a report stating that in case you get audited, you'll be able to pull that report and say, here's the report for whatever month they're auditing. So those are important. You want to look at any— at this time of the year, you might want to look at— you get tax return back, you want to book your, your finance, your records, your QuickBooks records to match the tax return. There may be depreciation or something in there that's been adjusted by the tax professional, but they never went in and put any journal entries into the file. So you want to look at it, book those in, or have your bookkeeper book those in. Sometimes we don't get those tax returns, and we need that to be able to true up the numbers to the tax return. Very, very important. place and space to do that. You want to get that, you know, the retained earnings booked in properly too. And there's a little trick to that. I probably could show that in another video. Those are the main reports that I think you really need to look at. You can do a balance sheet comparable report too, just like the profit and loss comparable, and compare year over year. Those are really important records to look at. You can run a cash flow statement, especially if your cash flow is tight. And even if it's not tight, you should really run one to kind of look at where you're at. in the world of how much cash you have in the firm. It's gonna probably pull in— it will pull in that trust account bank balance, not money earned. So you have to kind of discount that. But you wanna look at where you're at with cash flow. Look at what you have coming up for spending for the next month and kind of gauge there. There's 2 extra features inside of QuickBooks now that you'll probably want to look at. There is a button for forecasting. It's in the toolbar if you're using Advanced QuickBooks, and you can take that same forecast and create a budget from it. So it's a good time to sit down maybe with your bookkeeping professional and sit down with them and say, look, I want to have, I'll just say, $1 million in revenue this year. How do I get there? And start to really look at how you get there, figure that out, and start to work towards it. Start to have those goals, those thresholds, those places you want to be so you can track it and try to work towards coming to a very fruitful and beautiful trajectory for your firm where you're really profitable and everything's running like a fine-tuned machine. That's the goal. It's something we help our clients with. And if you're interested in our services, please feel free to reach out. We're just a, a quick contact form away. And on that note, we'll see you all next month. Bye now.
