What Financial Reports Should Solicitors Review Each Month?

Introduction

Running a successful law firm requires more than legal expertise. Solicitors must also understand their firm’s financial health to make informed decisions, maintain compliance, and ensure long-term sustainability. One of the best ways to stay in control is by reviewing key financial reports every month.

Monthly financial reporting allows solicitors to track performance, identify risks, and manage cash flow effectively. This article outlines the most important financial reports that law firm partners and managers should review regularly and how these insights can support better decision-making.

Why Monthly Financial Reviews Matter

Law firms deal with fluctuating income, unpredictable case lengths, and varying fee recovery rates. Without consistent monitoring, cash flow problems or falling profitability can go unnoticed until it is too late.

Regular financial reviews help solicitors:

• Understand how the firm is performing against budget.

• Identify overdue client payments or rising costs early.

• Comply with Solicitors Regulation Authority (SRA) requirements.

• Make data-driven decisions about staffing, pricing, and investment.

Monthly reviews also encourage accountability among partners and department heads, ensuring that all areas of the firm contribute to financial stability.

1. Profit and Loss (P&L) Report

The profit and loss report, also known as the income statement, shows the firm’s income and expenses over a specific period. It provides a snapshot of profitability and helps identify trends that could affect the firm’s bottom line.

Key elements to review include:

• Total income: Fees billed and collected during the month.

• Operating expenses: Staff salaries, rent, utilities, insurance, and other costs.

• Gross profit and net profit: The margin between income and expenses.

• Variance analysis: Comparing actual performance against budgeted figures.

By analysing the P&L report monthly, partners can monitor profitability by department or practice area and make timely adjustments to improve performance.

2. Balance Sheet

The balance sheet gives an overview of the firm’s financial position at a specific date. It lists assets, liabilities, and capital, helping solicitors understand what the firm owns and owes.

Important areas to monitor include:

• Current assets: Cash, client debtors, and work in progress (WIP).

• Liabilities: Loans, VAT liabilities, and unpaid expenses.

• Partner capital and reserves: Each partner’s investment and retained earnings.

A healthy balance sheet shows that the firm has sufficient liquidity to meet its obligations and reinvest in future growth. Reviewing it monthly ensures the firm maintains a stable financial structure and avoids overextension.

3. Aged Debtors Report

The aged debtors report lists all outstanding invoices and how long they have been unpaid, typically broken down into 30, 60, and 90-day intervals. For solicitors, this report is particularly important due to the profession’s reliance on client billing and credit control.

Reviewing aged debtors helps firms:

• Identify slow-paying clients.

• Follow up on overdue bills.

• Improve cash flow forecasting.

• Reduce the risk of bad debts.

A monthly review ensures prompt collection of outstanding fees and keeps working capital strong.

4. Aged Creditors Report

Just as it is important to track what clients owe you, it is equally vital to monitor what your firm owes others. The aged creditors report shows unpaid invoices from suppliers, consultants, and other third parties.

This report helps solicitors:

• Manage cash flow effectively.

• Prioritise payments to avoid late fees.

• Maintain good supplier relationships.

• Plan future expenses around known obligations.

Regularly reviewing this report ensures the firm pays suppliers on time without jeopardising liquidity.

5. Work in Progress (WIP) Report

The WIP report tracks ongoing client matters that have not yet been billed. It represents potential future income but also ties up the firm’s resources and working capital.

Monthly WIP reviews help partners:

• Monitor unbilled work and identify delays.

• Ensure accurate time recording and billing.

• Assess which matters are most profitable.

• Forecast future income more reliably.

A high level of WIP for long periods could indicate inefficiencies in billing or case management that need to be addressed.

6. Cash Flow Statement

The cash flow statement shows how money moves in and out of the business each month. It highlights how much cash the firm has available to meet immediate obligations.

This report includes:

• Cash received from clients.

• Payments made for expenses, salaries, and taxes.

• Net cash position at the end of the period.

For solicitors, monitoring cash flow is critical. Even profitable firms can run into trouble if cash is tied up in unpaid invoices or large outgoings. Reviewing this report monthly helps prevent liquidity issues.

7. Client Account Reconciliation Report

Under the SRA Accounts Rules, solicitors must reconcile client accounts at least once every five weeks. The client account reconciliation report confirms that the firm’s accounting records match the actual bank balance for client money.

This report should show:

• Client balances.

• Outstanding transactions.

• Adjustments or discrepancies requiring investigation.

Regular review of reconciliations ensures compliance with SRA regulations and reduces the risk of errors or breaches involving client funds.

8. Budget vs Actual Report

A budget vs actual report compares planned financial targets against actual performance. It highlights whether the firm is over or under budget in specific areas such as fee income, expenses, or profitability.

By reviewing this monthly, solicitors can:

• Identify overspending or underperformance early.

• Adjust targets and forecasts as needed.

• Make informed strategic decisions for future months.

Accountants can assist by interpreting these figures and recommending actions to bring performance back in line with expectations.

9. Partner Performance and Utilisation Reports

For partnership-based firms, tracking partner and fee-earner performance helps ensure equitable workloads and contributions. These reports show:

• Billable hours worked.

• Fee income generated per partner or department.

• Realisation rates (percentage of billed time collected).

By reviewing this information monthly, law firms can reward high performers, address inefficiencies, and balance workloads across teams.

10. Key Performance Indicator (KPI) Dashboard

A KPI dashboard brings together data from multiple reports into a single summary, providing a snapshot of financial health. Common KPIs include:

• Profit per partner.

• Average debtor days.

• Billable hours percentage.

• Client acquisition and retention rates.

Monitoring KPIs each month gives partners a clear overview of the firm’s financial trajectory and highlights areas needing attention.

The Role of an Accountant

An accountant helps law firms interpret financial reports, ensuring that partners not only receive the numbers but also understand what they mean. They can:

• Prepare monthly management accounts.

• Identify trends and risks.

• Recommend cost-saving or revenue-boosting strategies.

• Ensure compliance with the SRA Accounts Rules.

• Provide forecasts to guide long-term planning.

Having a professional accountant handle monthly reporting allows solicitors to focus on their legal work while maintaining financial control.

Example Scenario

A medium-sized law firm reviews its monthly financial reports and notices rising WIP and a slowdown in cash collections. The accountant analyses the figures and identifies delays in billing certain clients. By improving time recording and invoicing procedures, the firm reduces WIP and improves cash flow within two months.

This proactive approach prevents financial strain and supports steady growth.

Conclusion

Solicitors should review a combination of financial reports each month to monitor performance, ensure compliance, and maintain strong cash flow. Key reports include the profit and loss account, balance sheet, aged debtors and creditors, WIP, and client account reconciliations.

Working with an accountant experienced in the legal sector helps law firms interpret these reports accurately and make confident business decisions. Regular financial review is not just good practice — it is essential for sustainable success.