Depending on your firm’s accounting practices, the end of the year can either be a struggle or a breeze. If you don’t plan ahead, you can count on it being the former.  

The key to a hassle-free year-end close for law firms lies in careful planning and proactive accounting practices. By laying the groundwork well in advance, your firm can finish the year strong and everyone on your team should have time to enjoy the holiday season.  

We want to give busy legal professionals a head start when mapping out a successful Q4 accounting strategy. So we’ve compiled this list of six year-end accounting tips to set you up for quality time by the fire this holiday season, instead of being stuck crunching numbers. 

Reconcile your bank accounts 

Starting year-end closing begins with the basics, and one of the most fundamental steps in this process is reconciling your bank accounts. 

Here are just a few reasons to regularly reconcile your accounts: 

• You’ll be more able to detect any unauthorized or fraudulent transactions 
• You can ensure that all financial statements are accurately recorded 
• You’ll have the ability to confirm that your firm’s financial statements align with actual bank balances 

Regular account reconciliation gives you a solid foundation for a successful year-end closing, helping prevent a last-minute scramble to reconcile an entire year’s worth of transactions. 

Review trust accounts 

For law firms dealing with client funds, proper management of IOLTA (Interest on Lawyer’s Trust Accounts) is key all year round. But the end of the year is a good time to review them and ensure regulatory compliance. 

Failing to do so can risk violating state bar rules and incurring costly penalties and reputational damage. 

To keep your year-end closing on the straight and narrow, follow these steps for IOLTA trust account review: 

• Ensure proper separation and accounting of all client funds and operating accounts 
• Check that you’re performing regular three-way reconciliations of trust accounts in line with state bar rules 
• Verify that interest earned on client funds is properly recorded and distributed 

Easier said than done? Perhaps, but a legal-specific accounting software with built-in trust accounting tools can make it significantly easier to stay abreast of trust accounting needs (and protect your firm’s finances and reputation in the process). 

Review profit and loss statements 

Your Profit and Loss Statement (P&L) provides a snapshot of your firm’s financial performance over a specific period of time, generally a year. Reviewing your P&L gives you valuable insights into your profitability. 

Of course, you want to keep an eye on your financials all year long, but now’s the time for a thorough review. 

Here’s how to approach your P&L for maximum insight: 

• Locate areas where you can reduce expenses 
• Evaluate the performance of different practice areas or services 
• Plan for year-end adjustments, like accruals or prepaid expenses 

By thoroughly reviewing your P&L, you can make informed decisions that will help you optimize your financial performance, and set achievable financial goals to grow and scale your firm in the upcoming year.

  

Audit your balance sheet 

While your P&L shows revenue and expenses, your balance sheet tells you about assets, liabilities, and equity. 

Some essential actions when it comes to auditing your balance sheet are: 

• Verify that all assets and liabilities are correctly valued and categorized 
• Carefully review your accounts receivable and accounts payable to locate overdue or uncollected funds 
• Ensure that your equity accounts accurately represent your firm’s ownership structure 

By maintaining an accurate balance sheet, you can shave hours off the time you spend working on year-end closing by reducing the risk of last-minute adjustments or corrections.  

Identify and collect on outstanding balances 

This is another area where proper practices throughout the year make a huge difference. Run an accounts receivable report and see where your outstanding balances lie, so that you can bill for those and collect on them by December. 

Because your chances of collecting overdue balances drop significantly over time, you may want to consider writing off those that are still outstanding by December 31st. 

Avoid delays in your billing processes 

Inefficient billing processes can force you to wait until the 11th hour to input all of your financial information. Implementing timely, streamlined processes, on the other hand, can go a long way to making your year-end more restful.  

It’s not too late to make changes. Here are some tips to decrease delays or lags in your billing: 

• Establish clear payment terms and communicate them to clients from day one (or as of January 1) 
• Use legal billing software to automate billing and reduce manual errors 
• Offer online payment options to make it easier for clients to pay on time 
• Review accounts receivable and promptly follow up on overdue payments 

Take advantage of dashboards and reporting tools 

Most law firms must present comprehensive financial reports to their stakeholders at the end of the fiscal year, including partners, shareholders, and even clients. Make sure you can compile these year-end reports with transparency and accountability. 

While it’s possible to do your year-end accounting without utilizing dashboards and reporting tools, they make getting the job done a whole lot easier.  

Legal-specific software solutions will help speed your processes along by allowing you to: 

• Monitor your financial performance in real-time 
• Locate any potential issues or discrepancies before they become big issues 
• Set and track financial goals for the coming year 

By harnessing the capabilities of dashboards and reporting tools, you can proactively manage your financials, reduce year-end stress, and make data-driven decisions to keep your firm moving in the right direction. 

Finish the year strong with CosmoLex 

If you’re tired of dealing with last-minute year-end accounting every holiday season, it’s time to team up with a solution that does the heavy lifting for you, so you can spend the holidays with loved ones instead of staring at a computer screen. 

CosmoLex is designed to make every aspect of running a law firm easier. From business and trust accounting to billing, payments, and reporting, we’ve got the tools your firm needs to make year-end accounting a breeze. 

Finish the year strong! Start a 10-day free trial of CosmoLex or schedule a personalized demo today.