Take the stress out of “surviving” tax season and arm yourself with the tools you need to create better year-long planning and grow your practice. It’s time to consistently focus on the practice of law with these six tools for financial success.
Create a Chart of Accounts
Your first piece of ammunition in preparing your firm for a successful tax season, and overall financial well-being, is a Chart of Accounts. A well structured and all-inclusive Chart of Accounts provides a categorized listing of your accounts and their financial information for reporting purposes. This task, if not done at the start of your practice’s life, should be done now – it’s a simple case of mindful organization that will ensure your CPA can track everything from rent to petty cash.
Track your Spend with Technology
An audit trail of your everyday spend provides the real time information necessary to catch error-heavy reporting before it goes to your CPA. Bank reconciliations record your cash flow and should account for all your firm’s transactions. Investing in a good accounting tool, such as Xero, will automate this whole process for you. Allowing you to have real-time knowledge of your spend, so you can focus on your practice.
Keep Financial Reports
Lawyers are communicators by nature, and by necessity. You’re in constant communication to clients, staff and opposing parties, leaving you little time to draft multiple messages to your accountant. Audited, up-to-date financial reports are, however, the letters finance professionals love to receive. Advisors, consultants, banks and CPAs should be kept in the know of the state of your finances regularly to assist not only with annual taxes, but general firm health.
The net income of your firm indicates the current and future stance of your finances. The possibility of obtaining and maintaining financial success without knowledge of your current finances is virtually impossible. An income statement, therefore, is a vital record to maintain in anticipation of tax season. This records the big numbers that matter, such as your revenue, expenses, gains and loss accrued over a monthly or quarterly period, accounting for and tracking profitability.
Keep Balance in your Finances
Just as an income statement is a birdseye view of your finances, a balance sheet is a snapshot of the shape of your firm’s capital at a specific moment in time. Assets, liabilities and firm equity should all be tracked and reviewed as regularly as possible.
Do your Taxes
Lawyers are not accountants. You speak a different language, face different feats and thrive on different skills. Likewise, accountants aren’t artists or magicians. They won’t be able to craft a tax return from a mess of bills, or conjure up a healthy bottom line. Consistent and mindful organization will let you own your business, and your finances, year-round.