A Guide for Law Firm Owners: End of Financial Year 2024

May 29, 2024

With the end of the financial year fast approaching, taking stock of your law firm’s finances is critical for setting up your practice for financial success. By setting aside time before July 1 rolls around to methodically review your records, close on outstanding receivables and budget for the year ahead, you’ll give your firm a competitive edge and make planning for the coming year that much easier.

Whether you have just started up your law firm or have been operating as a law firm owner for some time, this guide will assist you in preparing for the upcoming financial year and help you stay across keeping your firm’s year-end financials in shape.

Prepare and plan for the upcoming financial year

Assess your firm’s financial health and performance

Assessing the financial health and performance of your law firm at the end of the financial year is crucial for helping make informed decisions and ensuring long-term success. Through conducting a comprehensive analysis of your financials, including income statements, balance sheets and cash flow statements, you are able to better understand your law firm’s current financial position. Key performance indicators (KPIs) such as revenue per lawyer, profitability by practice area and client retention rates can provide valuable insights into the firm's operational efficiency and revenue-generating capabilities. Benchmarking against industry standards and competitors can also offer perspective on your firm's relative performance.

Develop your budget for the upcoming financial year

Developing a solid budget for the new financial year is beneficial for law firms to effectively manage resources and plan for growth for the upcoming year. Once you have a clear understanding of your financial standing from the previous year by examining revenue streams, expenses and profitability across different practice areas, you can set realistic revenue targets and allocate resources accordingly. It's essential to factor in potential changes in overhead costs, such as rent, utilities and staffing, as well as any planned investments in technology or marketing initiatives. Additionally, incorporating a contingency fund for unexpected expenses can help mitigate any financial risks for your firm.

Plan for optimising your cash flow for the upcoming financial year

Planning to optimise cash flow for the upcoming financial year is essential for the financial health and stability of your law firm. Once you have assessed your current cash flow situation by identifying trends in income and expenses over the past financial year, you can develop realistic revenue projections and implement strategies to accelerate cash inflows. This may include encouraging prompt payment from clients and simultaneously streamlining your accounts receivable processes to minimise delays in receiving payments from clients.
On the expense side, you can plan to negotiate favourable payment terms with vendors and suppliers to optimise cash outflows. Planning for regular cash flow forecasting and monitoring throughout the year can also allow your law firm to proactively identify cash flow gaps and take corrective actions as needed, ensuring sufficient liquidity.

Review and refresh your understanding of your trust accounts and trust accounting obligations

Meeting your trust accounting obligations is a key responsibility not just as a lawyer, but also as a business owner. For lawyers handling client funds, maintaining a trust account is a requirement.

At the end of the financial year, you must reconcile your trust account records, ensuring that client funds are appropriately managed and accounted for. If you are using Clio as your practice management software for your firm, the trust accounting process is straightforward and easy to complete. Clio is proudly certified in trust accounting by the Law Society of New South Wales. This significant achievement reflects the company’s commitment to providing legal technology solutions that meet the highest industry standards set by the Law Society, including robust accounting practices and strict internal controls. It also demonstrates to potential clients that law firms utilising Clio prioritise security and compliance.

Firms can readily maintain compliance with the state’s trust accounting laws and regulations while also reducing the risk of errors that could have legal and financial consequences.

Assessing technology needs and vendors

Assessing technology needs is a critical step for law firms looking to modernise their operations and stay competitive. Firms should conduct an evaluation of their current processes and identify areas where technology can improve efficiency, enhance client service and streamline workflows to ultimately set themselves up for success this financial year. This may include identifying pain points in time tracking, billing, client communication and collaboration among legal teams. Once your firm's technology needs are identified, firms can begin evaluating potential vendors based on factors such as the comprehensiveness of their solutions, ease of integration with existing systems, scalability, security features, user-friendliness and cost-effectiveness.

It's essential to conduct thorough research, request demos and engage in discussions with vendors to ensure that their offerings align with your firm's specific requirements and long-term strategic objectives. Law firms can leverage technology as a strategic asset to drive growth, improve efficiency and deliver exceptional client experiences.

With Clio’s legal software, firms can get access to secure, reliable and scalable software that can:

Streamline your billing
Integrate with your most used apps
Provide matter management
Time and expense recording
Cost-efficient plans that suit your firm's needs
Client collaboration
Trust Accounting

and much more!

Through Clio, firms can automate repetitive tasks, improve collaboration among team members, track billable hours accurately, generate invoices promptly and ensure compliance with regulatory requirements.

You can prepare for the new tax year with ease with Clio’s 10% EOFY offer* by signing up before June 30, 2024. Join the many Australian law films making the switch to Clio today - the #1 legal platform trusted by over 150,000 legal professionals worldwide!

*T&Cs apply.

Learn more.

Claiming tax deductions

If you have earned income as a lawyer or law firm owner during this financial year, it is important to accurately report your income and expenses to the Australian Taxation Office (ATO). This includes declaring all sources of income, such as fees earned from legal services, as well as claiming eligible deductions. We break down some of the things you can consider claiming (with advice from your financial advisor) as tax deductions during your tax return.

*The below is general advice based on the ATO tax deduction guidelines for lawyers. For more information and an comprehensive list of your eligibility for tax deductions, please refer to the ATO deduction guidelines.

Annual practising certificate: Claiming a deduction for the cost of renewing your annual practising certificate is possible. However, there are limitations around claiming the initial cost of obtaining your practice certificate as a deduction, as you incur the expense to enable you to start employment, not while earning income.
Items used for work: If you use items such as a bag or briefcase to carry items for work, you can look into claiming a deduction to the extent to which the item is used for work-related purposes. Work items may include laptops, legal documents and briefs.
Books and journals: Deductions for the books and journals can be made if you use the publication mainly for work-related purposes. If you subscribe and pay for a publication in advance for more than one year, you should claim your deduction proportionately over the whole subscription period.
Phone, data and internet expenses: Phone, data and internet costs can be claimed as tax deductions if you use your personal phone or eclectic devices for work purposes. If this work-related use is incidental and you are not claiming in excess of $50 in total, then you don’t necessarily need to keep any records. However, if you claim more than $50 in total use, you need to keep these records to show your work-related use.
Insurance expenses: Whilst insurance expenses aren't work-related expenses, you may still be able to claim a deduction for, insurance premiums you pay to cover yourself for loss of employment income or the cost of professional indemnity insurance
Car expenses: You are not eligible to claim deductions for car expenses for normal trips between your home and regular workplace, but under limited circumstances, you may be able to claim the cost of trips between home and work.
Entertainment and social functions: You typically cannot claim a deduction for the cost of entertainment, fundraising, or social functions, whether compulsory or non-compulsory or if you discuss work-related matters at the event. Entertainment and social function costs may include the cost of work lunches/dinners, sporting events, social nights, concerts, etc.