7 Financial Reports Every Small Law Firm Should Review Monthly

Many small law firm owners look at their finances in only two ways: the bank balance and the tax return. Neither tells the full story. The bank balance does not show what clients owe, what work has not been billed, or what bills are coming due. The tax return arrives months after the year ends, when it is too late to change anything.

A short set of monthly financial reports gives attorneys a much clearer view of how the practice is performing. Here are the reports every small law firm should review each month and what to look for in each one.

1. Profit and Loss Statement

The profit and loss statement, also called an income statement, shows revenue and expenses for a period of time. It answers the most basic question: did the firm make money this month?

When reviewing it, look for:

• How revenue compares with the prior month and the same month last year
• Expense categories that are growing faster than revenue
• Unusual or unexpected charges
• Payroll as a percentage of revenue

A profit and loss statement is only useful if the bookkeeping behind it is accurate and categorized consistently. A clear, law-firm-specific chart of accounts makes this report much more meaningful.

2. Balance Sheet

The balance sheet shows what the firm owns, what it owes, and the owners’ equity at a specific point in time. For law firms, it should also clearly separate trust funds from the firm’s own money.

Key items to review include:

• Operating cash
• Accounts receivable
• Advanced client costs, for firms that front case expenses
• Credit card balances and loans
• Payroll tax liabilities
• Trust account balances and the matching liability to clients

Trust funds are not firm assets available for spending. On a properly prepared balance sheet, the trust account balance is offset by an equal liability to clients.

3. Accounts Receivable Aging Report

This report lists unpaid client invoices grouped by how long they have been outstanding, such as 0–30, 31–60, 61–90, and over 90 days.

It helps the firm identify:

• Clients who are falling behind on payments
• Balances that may need follow-up or a payment plan
• Old invoices that may never be collected

The older an invoice gets, the less likely it is to be paid. Reviewing this report monthly helps the firm act before receivables become write-offs.

4. Unbilled Time and Work in Progress

For hourly firms, work that has been performed but not yet billed is revenue waiting to happen. A report of unbilled time shows how much work is sitting in the system.

Large or growing unbilled balances can signal billing delays, timekeeping issues, or matters where the firm is doing work it may struggle to collect on.

5. Collection and Realization Rates

Two simple measures tell attorneys a lot about the health of their billing:

• Realization rate compares the amount billed with the value of the time recorded. Low realization may mean frequent discounts or write-downs.
• Collection rate compares the amount collected with the amount billed. Low collections may point to weak follow-up or client payment problems.

Tracking these rates month to month makes trends much easier to spot.

6. Cash Flow Report

A firm can be profitable on paper and still run short of cash. A cash flow report shows where money actually came from and where it went during the month, including owner draws, loan payments, and other items that do not appear on the profit and loss statement.

It is especially valuable for contingency-fee firms and other practices with uneven income.

7. Trust Account Reconciliation Report

For any firm that holds client funds, the monthly three-way reconciliation is not optional. It confirms that the adjusted bank balance, the trust journal, and the total of all client ledgers agree.

Attorneys should review it for:

• Any difference between the three balances
• Negative client balances
• Old outstanding checks
• Balances on closed matters
• Unidentified funds

How Long Should Monthly Review Take?

Once reports are prepared consistently, a monthly review can often be completed in under an hour. Many firms find it helpful to meet with their bookkeeper each month to walk through the reports, ask questions, and identify any action items.

The goal is not to become an accountant. It is to spot problems early and make better decisions about hiring, spending, pricing, and collections.

Get Clear Monthly Reports for Your Law Firm

A&W Associates provides monthly bookkeeping and financial reporting for law firms in Wesley Chapel, Tampa, and throughout the Tampa Bay area. We prepare accurate financial statements and trust reconciliations and can help you understand what your numbers are telling you.

Contact A&W Associates to learn more about our law firm bookkeeping services.

This article is provided for general informational purposes and does not constitute legal, tax, or financial advice.