Law Firm Financial Reporting: How Many Reports Could One Person Need? Today's Time/billing/accounting
Law Firm Financial Reporting: How Many Reports Could One Person Need? Today's Time/billing/accounting
Each software product will have different report names and slightly
different options, but we have included below some screenshots of
different productivity and time summary report examples from some of
the more popular small firm TBA products, PCLaw and Tabs3.
a. Collection Summary: A report like this is a great combination
report. You can see the number of hours billed, the amount of fees
billed, cash collected, how collections were allocated, and A/R
balances. All of this is run so you can analyze month by month,
attorney by attorney.
2. Billing: After your bills are run, wouldn’t you like a quick, easy way to see
what bills just went in the mail? You can see total fees billed, costs billed
and also see the totals summarized by the person who did the work (or by
responsible attorney, etc.).
3. Collections: Many law firms pay their attorneys based on the fees
collected. This report is going to show all payments received and see how
the cash in relates to the person who did the work.
4. Financial: Even if you don’t want the gory details, it makes sense for you
to look at a summary of your financial situation at least weekly. Here is a
summary of what that can look like. In a nutshell you need to make sure
that the cash you have on hand and what is coming in are going to exceed
what is going out. Not all of the software products will amalgamate this
into one Cash Flow report for you, but here is a sample of what you may
want to review.
a. Cash on hand – gives you the balance in your cash accounts, not
including trust
b. Accounts Receivable – lets you know what money is due to come
in during the next 30 days, and makes you aware of what your old
receivable balance is
c. Payables – Your payables total plus your next payroll total together
is the forecasted amount of cash you will need available
d. Work in Progress – WIP includes all time and fees that have not yet
been billed
f. Payroll – Gives you the next payroll date plus the estimated amount
for cash planning
g. Balance on LOC – Here you can track any short term liabilities
Keep in mind, this is just an example. You can include anything you want to see
on this report. This is a good option for you if you do not want to see the details
each week, you can get this on Fridays and then once or twice a month, get the
reports that give you the detail to these numbers. Of course, if any number looks
out of whack, you can request the detailed reports to support the numbers.
C. Your Financial Statements: The discussion about your financial statements refers
to 2 main reports. Your balance sheet and your income statement (aka Profit &
Loss). Basically, your balance sheet should show what you own (your assets), what
you owe (your liabilities), and any equity value you have in your law firm. Your
income statement is going to show total income minus total expenses giving you
a net income. The balance sheet totals carry forward from year to year, while the
income statement starts over each year. It is important to understand that those
two reports are very closely related. There is a line item on your balance sheet
that is called “Net Income” or “Retained Earnings”, and that number represents
revenue less expenses. So any change you make to the income statement will
affect the balance sheet. A trial balance is a consolidated financial statement that
basically combines both the balance sheet and the income statement onto one
report so that everything can be seen together.
Balance sheets, along with income statements, are the most basic
elements in providing financial reporting to potential lenders such as
banks, investors, and vendors who are considering how much credit to
grant the firm.
b. Current assets: Current assets are any assets that can be easily
converted into cash within one calendar year. Examples of current
assets would be checking or money market accounts, accounts
receivable, and notes receivable that are due within one year’s
time. Although accounts receivable is a common thing to see on
balance sheets, most law firms do not include that as a balance
sheet item because they are run on a cash basis. Simply put, when
you run your business on a cash basis, you do not count income
until you receive the cash, so billing has no effect on accounting.
v. Total fixed assets - This is the total dollar value of all fixed
assets in your business, less any accumulated depreciation.
d. Total assets: This figure represents the total dollar value of both
the short-term and long-term assets of your business.
iii. Total current liabilities - This is the sum total of all current
liabilities owed to creditors that must be paid within a one-
year time frame.
f. Total liabilities and owners’ equity: This comprises all debts and
monies that are owed to outside creditors, vendors, or banks and
the remaining monies that are owed to shareholders, including
retained earnings reinvested in the business.
You use an income statement to track revenues and expenses so that you
can determine the operating performance of your business over a period
of time. Small business owners use these statements to find out what areas
of their business are over budget or under budget. Specific items that are
causing unexpected expenditures can be pinpointed, such as phone, fax,
mail, or supply expenses. Income statements can also track dramatic
increases in expense accounts or reductions in income accounts.
Income statements, along with balance sheets, are the most basic
elements required by potential lenders, such as banks, investors, and
vendors. They will use the financial reporting contained therein to
determine credit limits.
iii. Rent - These are the fees incurred to rent or lease office or
industrial space.
e. Net income: This is the amount of money the business has earned
after deducting expenses from revenue
D. Summary: Any decent time, billing & accounting system is going to have a wealth
of information available to you in a myriad of reports. The key is to understand
what you are looking at and what it means for the financial health of your firm.
You don’t need to be an accountant to understand the basics and be able to spot
positive and negative trends, as this will allow you to know when you are doing
well or when to take corrective action (before it is too late) to put you back on
track.