3 things you MUST review when you get your law firm’s financial statements

Ok, so you’re working with an accountant and you’ve just gotten your monthly financial statements. What do you do? 

Do you scour them for hours looking for hidden information? 

Do you just file them away and hope there’s nothing there that you need to know? 

Are you even sure what you’re looking at?

Financial statements are a powerful tool, but only if you know how to use them and take the time to review them on a regular basis. You’ll want to deep-dive with your accountant to go into the finer details, but there are some things you should review yourself each month when you get your financials. 

Here are three things you MUST review on your P&L every month:

Revenue

Your revenue is the raw material for everything else. You need to be sure it’s a solid starting point. 

Take a look at the revenue section of your P&L. 

Does it look realistic? 

Is it what you were expecting to see? 

Keep in mind that there’s a difference between accrual and cash basis accounting. Most of us are on a cash basis, so you won’t see what you billed for this month, just the cash that actually came in the door. Does that cash line up with the deposit you made? Just watch for any obvious issues. 

Expenses

Next up is your expenses. You want to make sure everything was recorded and that it was put in the right category. When you review, watch out for big surprises. Do you have a huge number in an expense category that should be small? Something may have been coded there by accident. 

If you have a mix of personal and business expenses coming from the same account, make sure nothing is getting missed (this is a great reason to keep business and personal in separate accounts and cards). 

For example, if you purchased business supplies on Amazon but typically use Amazon for personal purchases, it may have been missed. All your bookkeeper will see is “Amazon” and they won’t know it’s a business expense unless you tell them or give them receipts. 

Profits

It all comes down to profits. The classic equation is revenue – expenses = profits, so here we are. When you receive your P&L statement, I want you to get in the habit of reviewing your profits. Make sure you know how much profit you’re making and whether it’s trending up or down. 

Profit is the lifeblood of a successful firm. It’s what allows you to grow and it’s what allows you to pull money from your firm to build wealth for yourself and your family. You should be very familiar with your profit numbers so you know exactly how healthy your firm is and that it’s improving month after month and year after year. 

Struggling with your financials or making sense of what they really mean to your firm? Feel free to reach out and set up a call. We help our clients navigate the numbers so they can make better decisions and more profit

 

Click here if you would like to schedule a time to talk.

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