A review of your law firm’s finances and general performance is non-negotiable before the end of the year. Let’s walk through some key considerations to keep in mind as you wrap up Q4 so you can finish 2022 on a high note and set yourself up for success in 2023.
The end of the year is the perfect time to reach out to existing clients and touch base. Go the extra mile to let them know you value them as clients and make it clear that you continually strive to find new ways to serve them in the best way possible. Simple outreach expressing your gratitude for their business goes a long way. Your clients like to know they’re valued.
This time of year is also an opportunity to review how you’re welcoming new clients to your practice. Review your intake process thoroughly. Are there ways it could be improved? Is there something you could do to make the process simpler? Make a thorough assessment to determine where you could save time, and what would make the process a smoother experience for your clients.
If you have any outstanding client issues, now is the time to resolve them. Don’t bring lingering problem areas with you into the new year.
Hopefully, you’ve been keeping meticulous time records. If you haven’t, now is the time to start. Tracking time as you go plays an important role in billing accurately, setting appropriate rates, sustaining trust with clients, and maintaining compliance. It also provides important operational data for your practice by helping you assess whether your team members are working efficiently.
Take a look at your existing time records and other reports. Where can processes and workflows be streamlined to increase efficiency and profitability? Are workloads appropriately assigned? Are you making the best possible use of your practice management software and its features?
One way to do this is by updating your tech stack so you can reduce the time spent on tasks that could be automated. With legal practice software like Tabs3, you can access detailed reports to inform decision-making and automation tools to streamline your processes.
Don’t wait until the last minute to tackle your year-end accounting. Give your EOY accounting the extra attention it deserves to guarantee that you maximize your profits for the year. Make sure you prioritize the tasks listed below.
Look at cash flow
Make a detailed estimate of what kind of cash you’ll have on hand come the end of the year. Make sure you take into account quarterly tax payments, staff bonuses, old payables, reserves for capital improvements, and any other unusual end-of-year cash disbursements.
Be sure there is sufficient cash flow to cover operating costs for the first quarter of 2023.
Review your timekeeping
We know we mentioned this already, but diligent timekeeping is critical to both profitability and compliance. As we turn the page on 2022, check that all staff members are up to date with their time entries. As you move into the new year, set a goal for all team members to track their time on a daily basis.
Studies show that the sooner you capture your time, the more you realize. In fact, law firms that track time as they go generate 25-40% more revenue than firms that do not. That’s a pretty compelling reason to make a point of going into the new year with better timekeeping habits.
If timekeeping habits have been slipping lately, consider updating (or establishing) your timekeeping policies so everyone is on the same page about the hows and whys of timekeeping at your law firm.
Check in with accounts receivable
Don’t bring outstanding balances with you into the new year. The longer you wait, the less likely you’ll be able to actually collect. Once an invoice passes the 180-day mark, there’s a 56% chance it will never be paid. Create a list of outstanding balances and try to recover them before year-end. Anything deemed uncollectible should be written off before the start of 2023.
Be sure to account for unreimbursed client expenses, as well as attorney expense reports. Write them off by the end of the quarter.
Review your current retainers
Check in with your current retainer balances. There should be enough there to cover your remaining anticipated work and expenses. If not, request replenishment in line with your firm’s retainer policy.
EOY accounting deserves your extra care and attention. Do a thorough review of your budget. Do your EOY reports align? Where are the gaps, and what can you do to stay on budget for 2023?
Lastly, do an audit of which areas of your business were most profitable, and which were less so. Your law firm is a business, after all. Examine where your revenue is coming from.
If the vast majority of your revenue stream is driven by two main practice areas and a third area generates only a trickle, perhaps your resources would be best spent focused on your money-makers. Consider scaling back on the areas that show little return. And if you don’t know which areas your revenue is coming from, adjust your financial reporting so that next year you will. Don’t continue feeding resources into an area of your business that doesn’t show sufficient returns.
As you wrap up Q4, have a look at your marketing spend for the year. Where are you seeing returns? Double down on what’s working and cut whatever is not.
If you’re using legal customer relationship management (CRM) software, check whether you’re getting everything you can out of it. When used efficiently, a CRM with law firm-specific functionality will help you win more business, impress your clients, and maximize your billable hours.
Just as you should reach out to your current clients at the end of the year to express your gratitude for your business, you should also make the same gesture to your referral network so you can ensure you’re top-of-mind as you enter the new year.
You’ve already gone out of your way to make your clients feel appreciated. Now is the time to make the same gesture with regard to your staff. Thank them for their hard work! Start thinking about what opportunities you can provide for your team to grow and progress in their careers as you head into the new year.
Looking forward to 2023
Now that you’ve done a thorough analysis of the year to date, it’s time to set goals for moving forward. Outline these goals in clear, actionable ways, and get your entire team on board.
If there are improvements you can make in your client services by updating your tech, streamlining your intake processes, or automating day-to-day tasks, start implementing these changes now so that you can kick off a profitable and productive 2023.