Law Firm Financial Reports: What Your Numbers Should Actually Tell You
Updated November 2025 with expanded guidance on report diagnostics and practice-specific priorities
Your firm has financial reports. The question is whether they help you make decisions.
Most law firm owners receive monthly statements that technically exist but practically serve no purpose. A profit and loss statement that shows total revenue without breaking down which practice areas actually make money. A balance sheet that satisfies your CPA but tells you nothing about whether you can afford to hire. Trust account records that show a balance but not whose money you're holding or why.
These aren't financial reports. They're compliance paperwork.
Real law firm financial reports answer the questions that keep you up at night: Where is profit actually coming from? Can I afford this hire? Am I paying myself too much - or not enough? Why does my bank account feel tight when revenue looks fine?
If your reports can't answer those questions, they're failing you.
The 7 Things Your Financial Reports Should Actually Show
1. Profitability by Practice Area
What you're probably seeing: Total revenue for the firm. Maybe a breakdown of fees collected. A single number that tells you billing happened.
What you should see: Net margins by practice area or matter type. Not just revenue - actual profit after accounting for the time, resources, and overhead each area consumes.
Your estate planning work might generate $200,000 in revenue but require so much attorney time and revisions that margins sit at 15%. Meanwhile, your business formation work generates $80,000 but runs at 45% margins because it's systematized and efficient.
Without this breakdown, you'll keep feeding resources into the wrong areas.
Red flags:
All practice areas lumped into one revenue line
No visibility into which case types are profitable vs. just busy
You can't answer "where should I focus business development?"
What to ask your bookkeeper: "Can you set up tracking so I see gross profit by practice area, not just total revenue?"
2. Trust Account Clarity
What you're probably seeing: A balance. Maybe a reconciliation report that confirms the numbers match.
What you should see: A complete breakdown of whose money you're holding, why you're holding it, how long it's been there, and whether any balances are stale or misallocated.
Trust accounting isn't just a bookkeeping task - it's a bar compliance requirement. Your reports should make it effortless to answer: "Whose money is this, and am I allowed to touch it?"
Red flags:
Trust balance shown as a single lump sum
No client-by-client breakdown
Balances sitting untouched for 90+ days with no explanation
No three-way reconciliation tying bank statement, book balance, and client ledgers
If your trust reports don't surface these details, you're one audit away from a problem. For a deeper look at trust accounting requirements, see our guide to trust accounting and IOLTA compliance.
What to ask your bookkeeper: "Can I see a client-level trust ledger with aging, and are we doing three-way reconciliation monthly?"
3. Cash Flow Patterns (Not Just Your Bank Balance)
What you're probably seeing: Your current bank balance. Maybe a cash flow statement that shows money in and money out.
What you should see: Patterns, timing, and projections. When does cash typically come in? When do big expenses hit? Are you trending toward a shortfall in 60 days?
A bank balance is a snapshot. Cash flow analysis shows the movie.
You need to see:
Inflow timing (when clients actually pay, not when you bill)
Outflow patterns (payroll, rent, quarterly taxes, annual subscriptions)
Seasonality (do collections drop every August and December?)
Runway projection (at current burn rate, how many months of cash do you have?)
Red flags:
Cash flow statement shows historical data only—no forward projections
You're surprised by cash crunches that "came out of nowhere"
No visibility into accounts receivable timing
You check your bank balance daily because you're nervous
What to ask your bookkeeper: "Can we add a 90-day cash flow projection to my monthly reports?"
4. Your Core Financial Metrics
What you're probably seeing: Revenue. Expenses. Maybe net income.
What you should see: The law firm financial metrics that reveal whether you're actually profitable - not just busy.
Standard financial reports show what happened. Metrics show why it happened and what to do about it.
Your reports should surface:
Utilization rate: Are your attorneys billing enough of their available time?
Realization rate: Are you collecting what you bill, or losing it to write-downs and discounts?
Effective hourly rate: What are you actually earning per hour after all adjustments?
Operating margin: What percentage of revenue becomes profit?
Cash runway: How many months can you operate at current burn rate?
If your reports show revenue and expenses but not these metrics, you're missing the diagnostic layer that explains your profitability.
Red flags:
You know your revenue but not your realization rate
You can't calculate your effective hourly rate
No visibility into utilization by attorney
You've never seen your operating margin calculated
What to ask your bookkeeper: "Can we add a metrics summary page to my monthly reports showing utilization, realization, effective rate, and operating margin?"
5. Owner Compensation Clarity
What you're probably seeing: Draws lumped with expenses. Or distributions that aren't separated from salary. Or nothing at all - you just transfer money when you need it.
What you should see: A clear breakdown of what you earned, what you paid yourself, and what you left in the business.
Most attorneys can't answer: "What did I actually earn last year?" That's a problem - for tax planning, for personal financial planning, and for understanding whether your firm can afford you.
Your reports should separate:
Draws: Cash you took out
Distributions: Pass-through income (if structured as S-corp or partnership)
Salary/guaranteed payments: If you pay yourself on payroll
Retained earnings: What stayed in the business
Red flags:
Owner draws are categorized as "miscellaneous" or buried in expenses
You don't know the difference between your draw and your distribution
Tax time surprises because distributions weren't tracked
You can't answer "am I paying myself too much or too little?"
What to ask your bookkeeper: "Can we set up separate line items for owner draws, distributions, and retained earnings so I can see exactly what I'm taking and what I'm leaving?"
6. Accounts Receivable Aging
What you're probably seeing: Total accounts receivable - one number showing what clients owe you.
What you should see: Aging buckets showing how long that money has been outstanding - and which clients are becoming collection risks.
AR aging shows:
0-30 days: Current, healthy
31-60 days: Starting to age, needs attention
61-90 days: Problem territory, requires follow-up
90+ days: Crisis - significant collection risk
A $50,000 AR balance looks healthy. But if $30,000 of it is over 90 days, you have a cash flow crisis disguised as a revenue number.
Red flags:
AR shown as a single total with no aging breakdown
Growing 90+ day balances month over month
No system for flagging overdue accounts
You're surprised when invoices become uncollectible
What to ask your bookkeeper: "Can I get an AR aging report every month showing totals by 30/60/90/120-day buckets, with client names for anything over 60 days?"
7. CPA-Ready Formatting
What you're probably seeing: Reports that require significant cleanup before your CPA can use them. Miscategorized expenses. Missing documentation. A January scramble every year.
What you should see: Clean categorization year-round. Proper classifications. Documentation attached. A chart of accounts your CPA actually designed or approved.
When your books are CPA-ready, tax time becomes a process instead of a crisis. Your accountant focuses on strategy and tax planning instead of cleaning up your data.
Red flags:
Your CPA reclassifies expenses every year
You scramble for 1099 information in January
Tax prep bills are inflated by "cleanup" time
You're not sure if expenses are categorized correctly
What to ask your bookkeeper: "Has my CPA reviewed our chart of accounts? Are we tracking everything they need for tax planning throughout the year?"
Which Reports Matter Most for Your Practice
Not all seven elements deserve equal weight. Your practice structure determines where to focus.
Solo Practitioners
Prioritize reports 1, 3, and 5:
Profitability by practice area: You need to know which work is worth your time
Cash flow patterns: No partner to cover shortfalls - you need 90-day visibility minimum
Owner compensation clarity: Every dollar comes from you; know exactly what you're earning and taking
Lower priority for now: AR aging matters less if you require retainers upfront. Trust clarity matters less if you don't handle client funds.
Small Firms (2-5 Attorneys)
Prioritize reports 1, 4, and 6:
Profitability by practice area: Enough volume to see patterns - double down on what works
Core financial metrics: Track utilization and realization by attorney to see who's performing
AR aging: More clients means more collection complexity - stay on top of aging buckets
Lower priority for now: Owner compensation is still important but less urgent than understanding firm-wide profitability and attorney performance.
Contingency-Heavy Practices
Prioritize reports 2, 3, and 6:
Trust account clarity: You're holding settlement funds - compliance is non-negotiable
Cash flow patterns: 6-18 months between settlements means cash timing is everything
AR aging: Less relevant for contingency fees, but critical for any hourly work or cost recovery
Lower priority for now: Profitability by practice area matters less when most cases are similar; focus on case-level profitability instead.
Transactional Practices
Prioritize reports 1, 4, and 5:
Profitability by practice area: Flat-fee work varies wildly in profitability - know your margins by service type
Core financial metrics: Realization and effective hourly rate reveal whether your flat fees are priced correctly
Owner compensation clarity: Transactional work can mask whether you're actually paying yourself appropriately
Lower priority for now: AR aging is less critical if you collect upfront or use milestone billing.
How Often to Review These Reports
Not everything needs monthly attention.
Monthly (Non-Negotiable)
Cash flow patterns and runway
Trust account balances and reconciliation
AR aging (at least a quick scan of 60+ day balances)
Core metrics summary (utilization, realization, margin)
Quarterly
Profitability by practice area (patterns emerge over 90 days)
Owner compensation review (are you on track for the year?)
CPA check-in (any categories need cleanup?)
Annually
Full chart of accounts review with your CPA
Year-over-year comparison of all metrics
Strategic planning based on what the numbers reveal
The Difference Between "Having Reports" and "Using Reports"
Plenty of firms have reports. They arrive as PDFs, get filed in a folder, and never inform a single decision.
Using reports means asking:
What changed from last month, and why?
What should I do differently based on these numbers?
What questions do I still have that these reports don't answer?
Your financial reports should connect directly to the law firm financial metrics that reveal profitability. And those metrics should connect to the accounting systems that generate accurate data in the first place - which is what we cover in our complete guide to accounting for law firms.
Reports → Metrics → Systems → Decisions
If any link in that chain is broken, you're flying blind.
What to Do If Your Reports Are Missing These Elements
If you've read this post and realized your current reports don't show half of what they should, you're not alone. Most law firm owners receive reports that were designed for generic small businesses, not legal practices with trust accounts, matter-based billing, and complex owner compensation structures.
The fix isn't working harder to interpret bad reports. It's building reporting systems designed for how law firms actually operate.
That's what we do. We set up law-firm-specific bookkeeping systems that generate the reports covered in this post - automatically, every month, without you chasing anyone for them.
If you want financial reports that actually help you make decisions, let's talk.
Let’s build financial systems that support the way you lead. Book your discovery call now to get clean, reliable, law-firm-specific financial statements that drives clarity, compliance, and confident decision-making.
Frequently Asked Questions About Law Firm Financial Reports
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At minimum: profit and loss statement (with practice area breakdown), balance sheet, cash flow statement, trust account reconciliation with client ledger detail, and accounts receivable aging. Most firms also need a metrics summary showing utilization, realization, and operating margin.
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Monthly for cash flow, trust reconciliation, AR aging, and core metrics. Quarterly for profitability analysis and owner compensation review. Annually for strategic planning and CPA coordination. Trust reconciliation specifically should happen monthly without exception -it's a bar compliance requirement in most jurisdictions.
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A profit and loss (income) statement shows revenue and expenses over a period - what you earned and spent. A cash flow statement shows when cash actually moved - when you received payment and when you paid bills. You can be profitable on paper but cash-poor if clients pay slowly. Both reports are essential; they answer different questions.
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Because it requires intentional setup. Your bookkeeper needs to configure your chart of accounts and matter tracking to allocate revenue and expenses by practice area or case type. Most generic bookkeeping setups skip this step. Ask your bookkeeper to create sub-accounts or use class/location tracking to segment profitability.
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Ask your CPA. Specifically: "If I sent you these reports today, what would you need to reclassify or clean up?" If the answer is "nothing significant," you're in good shape. If they list multiple issues, your reports need work. The goal is for your CPA to spend tax season on strategy and planning, not data cleanup.
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First, ask directly: "Can you set up reporting that shows [specific element]?" If they can't or won't, you have three options: train them (if they're willing), supplement with a fractional CFO or advisory service, or switch to a bookkeeper who specializes in law firms. Generic bookkeepers often lack the legal-specific knowledge to build these reports correctly.
