Comprehending the Finances at your Law Firm



Law firms need to be profitable because if they aren't, they won't survive. They need to generate enough revenue to pay staff, cover costs, and provide a return on investment. Is this you? You are so busy running your practice that you don't have time to dive deep into the firm's metrics. Your staff is working overtime to get the work done. You may not know how much money you bring in each month. Do you know how much you spend on rent, utilities, insurance, and taxes? These expenses will help you determine whether your business is making enough profit to cover all these costs.

The first step is determining where your money comes from and including both cash flow and revenue streams. Cash flow refers to the money coming in to pay bills and cover expenses. Revenue streams refer to the sources of income that make up your bottom line.


  • The most common pricing model used by law firms is the hourly rate. Hourly billing is where you charge clients based on how long it takes you to complete the matter or case. Additionally, you may have a more hybrid model where you may offer fixed fees for specific tasks, like drafting contracts, or you may charge per hour. However, there are some disadvantages to using an hourly fee structure. Firstly, clients may not understand how much they will pay if they don't know the exact cost of each service. Secondly, clients may feel like they are being charged too much because they didn't realize the total value of the service until after they had paid.
  • Many attorneys prefer a fixed fee structure. Charging clients set fees involves charging a flat rate for each service provided. It clarifies billing and peace of mind with the law firm's client. Furthermore, we see that attorneys who use this billing method are more profitable and can collect their fees upfront in full (no more open accounts receivable!)
  • The size of your practice depends on how much time you spend working on each case. You need to balance the amount of time spent on each case with the potential revenue generated by each case.

Legal Services and Operating Expenses

  • Cost of legal services: This is the cost of doing business. Law firms need to evaluate all the expenses incurred when providing legal services. It may include filing fees, gas, or travel expenses. It may consist of wages paid to staff or contractors who provide services for a particular client.
  • Operating Expenses: This includes all the costs of running your law firms, such as rent, insurance, software, salaries, and marketing. It doesn't contain any fees in association with a client matter.

As you read this article, you might wonder how your law firm's finances are doing. To help you with that, review your finances by running some financial statements.

Let's get started!

Profit and loss statement: Profit and loss statements are used to track and measure a particular business law firm's financial health. Profit and loss statement track income and expenses. The profit and loss statement will help you to identify your revenue sources and determine how your revenue is being spent. It will also show you if your law firm is running a profit or a loss.

Balance sheet: A balance sheet is a statement of the financial position of a business at one point in time. It consists of two sides that you need to be concerned about.

On one side, you'll find all the business's assets (what the firm owns), and on the other, you'll find all its liabilities and owners' equity (what the firm owes). At the end of each day, the difference between the two is your equity in the business.

We hope this blog post was able to help you understand the financials at your law firm. Researching your firm's finances is an excellent first step in understanding the numbers in your business. This research should be done at least annually and should be done by the management of the firm. If you want to learn more about them, please contact us anytime at 239-848-0001.