Affinity Consulting Blog


Almost every year at this time, we hear many of our clients lament, “How did it get to be fourth quarter already?” The older we get, the faster time seems to fly, and for those in charge of “the books”, there is much to be done as the year draws to a close.

The overall financial well-being of your firm is of the utmost importance. At no time is this well-being more under a microscope, then at year-end. Not only is it time to budget for the new fiscal year and prepare for tax time, but it is also often the time where the management team, partners and firm’s CPA review the profitability of the practice for the year and analyze trends in financial data.

In order for all of these things to occur, the firm needs to feel confidence in the accuracy of the year to date figures. That is why, as we come into the fourth quarter of the calendar year (which is also the fiscal year for most firms) we recognize the need for checks and balances on our year to date data. Some of these checks and balances are wise to do monthly, while others can perhaps wait for quarterly or yearly evaluation.

There are a myriad of items that should be reviewed as a matter of best practice, but here are a few of the key items:

Review all outstanding items on both your operating and trust bank reconciliations. No deposits should be outstanding for more than a few days, thus if you have any, there is likely a posting error or some other issue in play. Likewise, EFTs/ACHs, wire transfers should clear very quickly and lingering items in those categories typically spell an error, either on the bank’s part or in posting. Finally, review any check that is more than a few months stale and contact the vendor to confirm they received the check, or determine if someone in your office forgot to ask you to void it (e.g. because they accidentally stuck it in the file when the case settled).

Review your aged Accounts Receivable (AR) and Work in Process (WIP). Determine if there are files that should be billed out, written off, closed, etc. This is particularly important for client costs advanced, as for tax reasons, you do not want your outstanding advances to be inflated at year end. If particular attorneys have significantly delinquent accounts, engage with them to discuss collection efforts and what can be done to collect those aged amounts before year end.

Confirm that the balance showing on your financial statements for client costs advanced are in line with your AR & WIP balances. Per the IRS Attorney Audit Technique Guide, firms are supposed to show these costs on their balance sheet as an asset. Thus at any given point in time the amount of client costs advanced in your AR & WIP should equal what is outstanding on your balance sheet. If it does not, then you may need to make adjustments (e.g. if advances were written off on your client ledgers, but a corresponding adjusting journal entry was not made on the GL to expense those written-off costs).

If there are annual revenue goals for timekeepers, where does each stand with respect to actual v. goal. Communicate with your timekeepers accordingly and make sure they are aware of their status. This may also lead to discussions about workloads, staffing and overall utilization within the firm.

Review your budget to actual income and expenses. Where did you deviate and why? This can be a foundation for drafting your 2017 budget.

Review your GL for data entry errors. For example, were fixed assets expensed? Are there lingering payroll liabilities on your balance sheet that look wrong? Are there items sitting in Suspense or Miscellaneous accounts because someone wasn’t sure where to post it?

We will be hosting a FREE year-end best practices webinar on October 11 to dive further into these items and many others. We hope that you will join us! To register, click here.

We are also now offering a new flat fee service from Affinity – our Accounting & Billing Health Check! We have several levels of service, including a health check geared specifically to year end.

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