Closing the books on a small law firm’s finances is a clear point of stress for a busy attorney at the end of the fiscal year. However, the process doesn’t have to be a painful one, according to Deborah J. Schaefer a Certified Public Accountant (CPA).
She says the secret to cleaner year-end financials involves two critical steps: early bank reconciliation and checklists.
Even with years of experience under her belt, she too relies on checklists to ensure everything’s in order before pushing the final button to close out a law firm’s fiscal year.
“As a CPA myself, I know the year-end process inside and out, but no matter how much I may pride myself on knowing every step by memory, I never rely on memory.”
Two Stages of Year-End Planning
According to Ms. Schaefer, there are two stages to preparing for year-end financials. The first stage includes closing out each individual month. This process should happen throughout the course of the year. The reason this step is important is to freeze data entry for any activity involving cash, along with the general ledger for the closed month.
The second step is closing the year. However, she adds year-end closing doesn’t usually happen right at the end of the year. Rather, the firm’s accountant will typically dictate any year-end adjustments that need to be made. Once these adjustments are received, the firm must back-date them to the last day of the fiscal year.
“For your fiscal year-end to be on December 31st, the month of December must be the last month closed prior to performing end-of-year.”
Here she offers a few conditions that need to be met prior closing year-end:
- All bank accounts have been reconciled
- The accountant’s adjusting entries have been received and entered
- Financial statements have been printed and compared
- The last month of the fiscal year has been closed
To streamline the process, Ms. Schaefer says it’s a good idea to keep electronic files of reports each month and produce reports in the same manner. She recommends creating end-of-month and end-of-year reports into one single report, as opposed to creating separate individual reports and pulling them together.
This saves time and ensures no reports are accidently left out. Useful legal specific law firm practice management software can help by providing existing report groups such as End-of-Month or End-of-Year that can be used as is are, or modified, as needed.
Download this complimentary white paper:
A Step-by-Step Guide to a Smoother End-of-Year
with Deborah J. Schaefer, CPA
“The no-mistakes way to a smoother year-end.”
Keep Accounting Conversations Open Year-Long
It an unfortunate custom for an accountant to swoop in at the end of the year to review the firm’s financial statements to spot and correct any errors and look for tax write offs. Ms. Schaefer has a better idea – she recommends meeting with the firm’s accountants intermittently throughout the year. This step she says can take some of the chaos out of year-end and eliminates the pressure of year-end buckling down:
“Many firms spend dearly in added accounting costs each year because every piece of the year-end puzzle is pushed out to the frantic final weeks, days and even hours of the year-end procedure, when rush charges can accumulate rapidly and leave your firm with an extra expense you never planned for in budgeting.”
In a white paper, titled Step-by-Step Guide to a Smoother End of Year, Ms. Schaefer boils three decades of experience in law firm accounting to an 11-step check list. The paper is complimentary for download with registration here.
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