As the Year Winds Down, Is Your Practice Ready?
With the end of the year quickly approaching, now is the perfect time to organize your practice and perform a thorough financial review. Here are key steps to help ensure your law firm closes the year strong and sets the stage for a successful new one.
Mastering Financial Management in Your Law Firm
For many lawyers, managing finances is one of the most challenging aspects of running a firm. That’s completely understandable—but not mastering the financial basics can hold your business back.
It’s wise to engage experienced financial professionals who can help you understand the financial health of your practice. Too often, lawyers hand over critical responsibilities to staff members who lack proper training. One major risk is having a single person responsible for everything—bookkeeping, trust accounting, bank communication, and more. Even if unintentional, a lack of oversight can lead to serious errors. Implementing proper checks and balances is essential.
As the firm owner, having a firm grasp of your financial processes is critical. If you don’t understand how your systems work, it’s hard to spot issues or manage them effectively.
Monitor and Manage Cash Flow
Brenda Barnes, founder of B2 Management & Consulting, emphasizes the importance of cash flow:
“Strong cash flow management can be the difference between success and failure. It enables you to meet obligations, invest in growth, and operate strategically instead of reactively.”
The end of the year is an ideal time to evaluate your cash flow, set up a cash flow budget, and look for ways to improve.
Year-End Financial Review Checklist
Barnes offers a comprehensive checklist to help law firms wrap up the year efficiently and prepare for the future:
-
Compare current and previous realization rates.
-
Evaluate client profitability to guide billing rate changes.
-
Review attorney/paralegal billing rates and adjust as needed—then prepare client communications if changes will be made.
-
Set performance budgets for timekeepers, including billable hours and collections.
-
Audit your general ledger and correct any miscodings.
-
Review your profit and loss statement—consider investing in deductible assets if profits are high (consult your CPA).
-
Verify and clean up loan accounts.
-
Follow up on outstanding receivables and minimize unpaid balances.
-
Write off uncollectible debt if necessary—only after attempts to collect.
-
Make retirement contributions (SEP IRA/401(k)) and charitable donations to reduce tax liability.
-
Ensure all 1099 data is accurate—confirm W-9s and Tax IDs are on file.
-
Plan for year-end bonuses—will you issue them now or in January?
-
Review fringe benefits that need to be reported on W-2s (e.g., insurance, transit, reimbursements, forgiven loans).
-
Set your firm’s budget for the new year.
-
Check with your CPA for potential new tax deductions or credits.
-
Reconcile and verify all balances on your firm’s balance sheet.
Address Broader Challenges Impacting Your Practice
Beyond numbers, consider how external factors are influencing your business and well-being:
-
How is your specific practice area performing?
-
Are clients paying on time? Are your rates sustainable?
-
Are your staff members doing well? Do your office procedures support them?
-
Is your remote or hybrid setup functioning smoothly?
-
Are you maintaining your own mental and emotional health?
-
Can you offer meaningful support to your team?
Too often, we get caught up in daily demands and overlook the bigger picture. Set aside time to evaluate how economic and operational stressors have affected your firm this year. Ask your team for input—they often have insight you might miss.
Look Back with Clarity to Plan Ahead with Confidence
A thoughtful year-end review can help you assess how your firm responded to challenges and identify opportunities for improvement. By honestly reflecting on your performance, you’ll be better equipped to make strategic decisions and strengthen your practice moving forward.
