At the end of this busy year, your law firm should be looking forward to some much-needed rest—but don’t shut down the office for the year until you’ve balanced your accounting books! Follow our 2022 year-end accounting checklist to prepare for a profitable 2023 by making sure that your firm’s finances are in tip-top shape.
Why should law firms review their finances annually?
Reviewing your firm’s financials each year isn’t just a best practice for law firms—it can provide firms with tangible benefits in the year ahead. Every law firm should review its accounting system at least once a year. Here’s why:
- Catch errors – Reviewing your books annually helps firms catch errors when they still have the documentation on hand to fix them.
- Prepare for spring taxes – While spending time on a year-end review may feel time-consuming now, it will save you effort in the spring when tax time rolls around.
- Organize documents in case of an audit – Audits are unexpected by nature, but investing in your firm’s financial health now will ensure that you are prepared if one occurs.
- Support impactful decision-making in 2023 – You need to have a full picture of your firm’s financial health in 2022 in order to thoughtfully make plans to reach your business goals in 2023. Boost revenue, decrease your bottom line, or scale your business by understanding your annual expenses.
A 2022 year-end accounting checklist
Reviewing your annual finances doesn’t need to be time-consuming or overly complicated. Follow these steps to get the full picture of your firm’s financial health in 2022:
1: Invoice all work completed in 2022
Invoice all current clients through the end of the year, and run an accounts receivable report to ensure you’ve collected past-due or unpaid invoice from the year.
If you’re having trouble collecting on some of your client accounts, try these tips:
- Inform clients you accept online payments or credit card payments over the phone rather than checks—bills that can be paid online are typically paid 39% faster than payments that must be mailed out or made in person.
- Offer payment plans to clients with large balances or discounts if bills are paid early, as incentives can show clients the benefit of making timely payments.
- Itemize all bills clearly to ensure questions about charges don’t slow down your annual financial review.
2: Pay all 2022 expenses
Ensure you’ve paid all outstanding expenses due in 2022 to accurately view your firm’s financial health (and to avoid accidentally over inflating your business revenue for the year).
3: Double-check your firm’s business accounts
Tally up fees, rewards, or interest accumulated on the firm’s bank accounts and credit card statements. If any transactions haven’t cleared, record them for your accountant.
4: Reconcile your firm’s trust accounts
Run a Work-in-Progress report to ensure all payments from trust accounts have been appropriately allocated, then reconcile trust account balances against bank statements to check for legal compliance.
5: Review your firm’s 2022 performance
Review your firm’s new liabilities, new assets, capital contributions, and owner income from 2022 to understand your firm’s overall performance.
6: Run profit and loss statements for 2022
Compare your 2021 profit and loss statements to your 2022 numbers to determine whether your firm grew financially in 2022, and set goals accordingly for 2023.
Invest in your firm’s financial health for a profitable 2023
Proactively assessing your law firm’s finances before the end of the year can make your practice more efficient, profitable, and goal-oriented in the year ahead. Download the full 2022 Year-End Accounting Checklist to get started.