Getting Ready for Year-End: Tips from a Law Firm CFO

As October unfolds and the year-end countdown begins, law firms face a critical window of opportunity. While many attorneys wait until December to think about year-end financials, the most successful firms start their preparation now. At Accounting Girl, we've guided countless law firms through this process, and we're here to tell you: the decisions you make in the next few weeks will determine whether you close out the year with confidence or chaos.

This isn't about tax preparation—that's your CPA's domain. This is about strategic financial positioning, operational clarity, and setting your firm up for a strong start to next year. Let's dive into what you need to be doing right now from a CFO perspective.

Why Q4 is Your Financial Sweet Spot

You have exactly the right amount of time to make meaningful changes. Start now, and you can:

• Identify and resolve financial issues before they become year-end crises

• Make strategic decisions about revenue recognition and expenses

• Implement systems that will serve you into next year

• Close out the year with clean books and clear insights

• Position your firm for strategic growth planning in Q1

Wait until December, and you'll be in reactive mode, scrambling to piece together information when everyone's focused on holiday schedules and year-end client emergencies.

Get Your Books Reconciled—All of Them

If there's one non-negotiable for year-end preparation, it's this: your books must be fully reconciled through at least September, ideally through October.

What needs reconciliation:

• Operating accounts (every transaction matched and categorized)

• Trust accounts (complete three-way reconciliation with client ledgers)

• Credit card accounts (all expenses properly categorized)

• Loan accounts (balances and interest tracked accurately)

• Payroll accounts (including any owner compensation issues)

Why does this matter so much? Because you cannot make strategic decisions based on incomplete data. If you don't know where you actually stand financially, you're flying blind into year-end.

Many law firms discover common accounting mistakes during year-end reconciliation—issues like miscategorized expenses, unreconciled trust accounts, or poor cash flow tracking that have been accumulating all year. Finding these problems now gives you time to fix them properly.

Trust account compliance is particularly critical. Your IOLTA accounts must be perfectly reconciled with client ledgers before year-end. State bar audits don't care about your excuses, and trust account violations can have serious professional consequences. If you're behind on trust reconciliation, make this your immediate priority.

Conduct a Comprehensive Budget vs. Actual Analysis

You need to know exactly how this year performed against your expectations. This analysis reveals patterns, problems, and opportunities that inform your strategic decisions.

Key questions to answer:

• Did revenue meet projections? If not, why? (billing delays, lower case volume, realization issues?)

• Which practice areas or case types exceeded expectations?

• Where did expenses exceed budget, and were those overages strategic or wasteful?

• What was your actual profit margin compared to projected?

• How did your billing model perform? (This matters more than ever given changing industry dynamics)

This isn't just an academic exercise. Your budget vs. actual analysis should drive specific actions. If marketing expenses were high but didn't generate proportional new business, you need to adjust strategy. If certain practice areas consistently exceeded revenue projections, you should consider expanding capacity there.

At Accounting Girl, we help firms conduct these analyses as part of our virtual CFO services, translating raw numbers into actionable strategic insights that guide decision-making.

Tackle Your Accounts Receivable Aggressively

Year-end is the perfect time to convert outstanding invoices into collected cash. Your A/R balance represents money you've already earned but haven't collected—money that could strengthen your cash position heading into next year.

Your October A/R action plan:

1. Generate a complete aging report. Categorize all outstanding invoices by age (0-30, 31-60, 61-90, 90+ days).

2. Prioritize strategically. Focus collection efforts on:

   • Invoices over 60 days old (these have the highest risk of becoming uncollectible)

   • High-value invoices (even if relatively recent)

   • Clients with multiple outstanding invoices

   • Accounts approaching statute of limitations for collection

3. Implement systematic follow-up. Create a schedule for contacting clients about overdue invoices. Personal phone calls work better than emails for larger balances.

4. Consider payment plans. Some payment is better than no payment. For clients facing genuine hardship, structured payment plans can convert write-offs into collected revenue.

5. Make hard decisions about uncollectible accounts. If you have invoices over 120 days old with no response from clients despite multiple attempts, it may be time to consider them uncollectible. Better to recognize that reality now than carry false assets into next year.

Strong A/R management is foundational to cash flow stability, and getting ahead of collections now prevents the cash crunch that hits many firms in Q1.

Review and Adjust Your Owner Compensation Structure

This is particularly important if your firm structure is an S Corporation or if you're considering entity conversion. How you pay yourself matters tremendously for both compliance and strategic financial management.

S Corp owners: verify your reasonable salary compliance. The IRS scrutinizes whether S Corp owners are taking sufficient salary versus distributions. If you've been light on W-2 wages and heavy on distributions, now is the time to make adjustments before year-end. Running a bonus payroll or adjusting your regular salary for the remaining months can help you meet the reasonable compensation standard.

All entity types: evaluate compensation strategy. Are you taking draws based on cash availability without regard to overall financial health? Are you consistently leaving money in the business that could be better utilized for retirement contributions or tax-advantaged benefits?

Consider retirement contributions. Depending on your entity type, you may have opportunities to make tax-advantaged retirement contributions before year-end. SEP-IRAs, Solo 401(k)s, and other self-employed retirement plans have different rules and contribution limits based on your structure.

Year-end is also the perfect time to evaluate whether your current entity structure still serves your needs. Has your income grown significantly? Have your benefit needs changed? Are you considering adding partners? These questions may indicate that an entity conversion should be on your radar for next year.

Clean Up Your Chart of Accounts and Expense Categories

Your chart of accounts is the organizational framework for all your financial data. If it's messy, inconsistent, or overcomplicated, every financial report you generate will be harder to interpret and less useful for decision-making.

October cleaning tasks:

• Consolidate redundant categories. Do you really need separate accounts for "Office Supplies," "Office Expenses," and "General Supplies"? Simplify.

• Ensure consistent categorization. Review several months of expenses to verify that similar expenses are being categorized consistently. Inconsistency makes trend analysis impossible.

• Eliminate unused accounts. If you created accounts for specific purposes that are no longer relevant, archive them.

• Create missing categories if needed. If you're frequently using "Miscellaneous" or "Other," you probably need more specific categories. There should not be any Miscellaneous or Uncategorized lines on the final financial statements. *Beware of falling into the trap of creating too many categories - each vendor doesn’t need their own category.

• Verify proper trust vs. operating separation. Trust account transactions should NEVER be mixed with operating account transactions in your books.

Clean books make tax preparation easier (and less costly!), financial analysis more accurate, and strategic planning more effective. This is specialized knowledge that law firms need, and getting it right now saves enormous headaches later.

Evaluate Your Technology and Software Stack

Your technology expenses likely represent a significant portion of your overhead, and the legal industry is experiencing rapid change in how technology impacts firm finances. Now is the time to evaluate what's working, what's not, and what needs to change.

Conduct a software audit:

• List every software subscription and tool your firm pays for

• Identify which tools are actively used and which are forgotten subscriptions

• Identify if any users can be removed to lower the per user subscription fee

• Evaluate whether current tools actually improve efficiency or just create more work

• Calculate the total annual cost of your technology stack

• Assess whether you're getting adequate value for each expense

Key questions:

• Are you paying for practice management software that isn't being fully utilized?

• Do you have multiple tools that serve overlapping purposes?

• Are there manual processes that could be automated with better technology choices?

• Is your team actually using the tools you've invested in?

Cancel subscriptions that aren't providing value, and make a list of technology needs for next year. But here's the important CFO perspective: don't just cut technology spending to reduce expenses. Strategic technology investments can dramatically improve your firm's efficiency, client service, and profitability. The key is investing in the right tools and actually implementing them effectively.

Plan Your Cash Flow for Q4 and Beyond

The final quarter brings unique cash flow challenges: holiday schedules, year-end bonuses, potential slow periods, and the transition into Q1 (historically a cash-tight period for many law firms due to lower collections and holiday impacts).

Create a detailed cash flow projection:

1. Expected income: Based on current pipeline, pending cases, and typical seasonal patterns, project your revenue for each remaining month.

2. Fixed expenses: List all predictable expenses (rent, payroll, insurance, software subscriptions, loan payments).

3. Variable expenses: Estimate case costs, marketing expenses, and other fluctuating costs.

4. Timing considerations: Factor in typical payment delays, holiday impacts on collections, and any large planned expenses.

5. Identify gaps: Where do projected expenses exceed projected income? What's your plan to cover those gaps?

Consider strategic actions:

• Should you accelerate billing to improve Q4 collections?

• Do you need to establish or expand a line of credit before you need it?

• Are there large purchases that should be made (or delayed) based on cash flow timing?

• What's your plan for covering payroll during slow periods?

Strong cash flow management isn't about hoping things work out—it's about proactively managing timing, making strategic decisions about when to spend and when to conserve, and ensuring you always have the resources to meet your obligations.

Document Your Financial Systems and Processes

If you're the only person who knows how your firm's finances work, you have a critical business risk. Year-end preparation should include documentation of key financial processes.

What to document:

• Bank and credit card reconciliation procedures

• Trust account management and three-way reconciliation process

• Invoicing and billing procedures

• Accounts payable approval and payment process

• Payroll processing steps

• Month-end and year-end closing procedures

• Where key documents are stored (contracts, insurance policies, tax returns)

Why does this matter? Because if you're hit by a bus (or just go on vacation), your firm needs to be able to continue functioning. Documentation also makes it easier to delegate tasks, train new staff, or bring in outside help when needed.

This is also valuable preparation if you're considering bringing on specialized accounting support—clear documentation makes transitions smoother and ensures nothing falls through the cracks.

Prepare for Strategic Planning

Year-end preparation isn't just about closing out this year—it's about positioning for next year's success. The financial work you do now creates the foundation for strategic planning in Q1.

Gather the data you'll need for strategic planning:

• Three years of revenue trends (by practice area, billing method, client type)

• Profitability analysis by practice area

• Client acquisition costs and lifetime value

• Key performance indicators (utilization rates, realization rates, collection rates)

• Capacity analysis (can you handle more work with current staff?)

Strategic questions to consider:

• What practice areas should you expand or reduce?

• Are there staffing changes needed (hiring, role adjustments, or reductions)?

• Should you adjust your pricing or billing models?

• What marketing strategies delivered ROI, and which should be cut?

• Are there operational efficiencies you can implement?

The firms that thrive are those that approach these questions with solid financial data, not gut feelings or wishful thinking. Your year-end financial preparation should put you in position to make these strategic decisions with confidence.

The Accounting Girl Approach: Strategic Financial Partnership

Here's what separates successful law firms from struggling ones: they treat financial management as a strategic function, not just a compliance necessity. They recognize that clean books, accurate data, and informed decision-making are competitive advantages.

At Accounting Girl, we specialize in providing law firms with the financial support they actually need—not just bookkeeping, but strategic CFO-level guidance that helps you understand your numbers, make better decisions, and position your firm for sustainable growth.

We help law firms:

• Maintain consistently reconciled books all year (not just at year-end)

• Implement and manage proper IOLTA compliance

• Develop KPI tracking and strategic financial reporting

• Create cash flow projections and manage liquidity

• Navigate entity structure decisions and owner compensation issues

• Build financial systems that scale as your firm grows

The best time to start working with a specialized law firm accountant was at the beginning of the year. The second-best time is right now, before year-end pressures build.

Your Year-End Preparation Checklist

To make this actionable, here's your comprehensive checklist for year-end financial preparation:

Immediate Actions (October):

• [ ] Reconcile all accounts through at least September

• [ ] Complete budget vs. actual analysis for January through September

• [ ] Generate accounts receivable aging report and create collection plan

• [ ] Review and clean up chart of accounts

• [ ] Conduct software and technology audit

• [ ] Verify trust account compliance and reconciliation

November Actions:

• [ ] Implement AR collection campaigns for aged invoices

• [ ] Review owner compensation for S Corp reasonable salary compliance

• [ ] Project Q4 cash flow and identify potential gaps

• [ ] Complete October reconciliations

• [ ] Make decisions about uncollectible accounts

• [ ] Plan for any major year-end expenses or purchases

December Actions:

• [ ] Final AR push for year-end collections

• [ ] Complete November reconciliations

• [ ] Process year-end bonuses (if applicable)

• [ ] Make final owner compensation adjustments

• [ ] Document financial processes and procedures

• [ ] Compile strategic planning data for Q1

• [ ] Coordinate with CPA on tax preparation timeline and needs

Post-Year-End (January):

• [ ] Complete December and year-end reconciliations

• [ ] Generate annual financial reports

• [ ] Conduct strategic planning session

• [ ] Set goals and budgets for new year

• [ ] Review and adjust financial systems based on prior year lessons

Take Action Now

Year-end financial preparation isn't glamorous, but it's essential. The firms that approach it strategically—starting now, not in December—are the ones that enter the new year with clarity, confidence, and a solid foundation for growth.

Don't let year-end sneak up on you. Start your preparation today, and if you need expert guidance specifically designed for law firms, Accounting Girl is here to help. We understand the unique financial challenges attorneys face, and we're ready to be your financial superhero.

Your firm's financial health is too important to leave to chance. Let's make sure you close out this year strong and start the next one even stronger.