So you’ve made it to the end of another year. You are ready to take a vacation and kick back with a nice glass of wine. But before you start dreaming about your next trip, consider this question: How well did your law firm perform financially? Did it bring in more revenue or less than last year? Did costs go up or down? And what impact did that have on profits? These are questions all lawyers should be asking themselves at the end of a fiscal year. They can help you understand how well your law firm finances are working so that you can make better decisions about where to focus your time and energy as an attorney. Here’s how to do just that with an end-year review.
Year-end reviews are more than your boss telling you what you’re doing good and bad
You must remember that year-end reviews aren’t just about the good and bad. They are also an opportunity to talk about your performance, goals, and career path. This is a great time for you to ask how you can improve, what you need to do to move up, or whether there are any opportunities within the company for which you might be suited. And don’t forget that this is also a great opportunity for them to raise salary questions with you as well.
Your year‑end review is a great time to ask questions about the financial health of your firm
If you’re like most lawyers, you probably don’t know much about the finances of your organization beyond what shows on the balance sheet or income statement. But, as an attorney, you have a tremendous amount of influence on the financial health of your firm. Your billable hours are directly linked to the bottom line and therefore, you have a responsibility to understand how money flows throughout your organization.
Year‑end reviews are also a great way to understand how you contribute to the business
Year-end reviews are also a great time to ask questions about the financial health of your law firm. They’re a good opportunity to understand how you contribute to the business, and whether your work is profitable enough for it to be worth investing in further training or education. Year-end reviews are also a great opportunity for you to ask questions about yourself and how you can improve. These include the following: Are there certain things that would make your role easier? How does your performance stack up against other members of the team? What do other people think about how you’re doing, and what could change so that they’d feel more positive about their experience working with you?
Learn how to use a P & L, or profit and loss statement, and balance sheet to evaluate a firm’s profitability
You can also use a balance sheet, which is similar to an income statement and a P & L, or a profit and loss statement, to evaluate the profitability of a firm. These are particularly useful if you want to compare your performance against other firms in your area or industry.
The balance sheet shows the value of assets on one side and liabilities and equity on the other side. This will give you an idea of how much money is going into each part of your business from different sources. For example, if there is more money coming in than going out then that means there may be some cash surplus that could potentially be used for growth opportunities like hiring new staff members or upgrading equipment or office space at no cost upfront.
In comparison, when reading through each line item on both documents make sure all figures add up correctly as well as check whether any figures are missing entirely before deciding whether they look accurate enough based on what else you know about them.
Part of understanding law firm finances is also understanding how you contribute to the business
As a lawyer, you’re likely familiar with reading basic financial statements. Profit and loss statements (P&Ls) show how much money your law firm earned or lost in a given period. Balance sheets show what assets, liabilities, and equity are held by your law firm at any given moment. Both are useful tools for understanding the financial health of a business—and its current situation relative to its past performance and future goals.
While you may have an idea of how much revenue is coming into the firm (from client payments), it’s not always easy to see where this money is going—and which expenses are eating up more than their share.
But all this means is that your due diligence is especially important. Set up a good foundation before you get hit with the big fees. Arm yourself with the right information so you can make the right decisions, and know when to say when. It will be more difficult than it would be at any other firm, but really, that’s all part of being a good lawyer too – understanding everything you are up against from both a financial and legal standpoint.
