Year-End Checklist for Law Firms: Getting Your Books Ready for the New Year

As another year draws to a close, small law firm owners face a familiar challenge: preparing their finances for year-end reporting while simultaneously managing active cases and serving clients. Unlike many businesses that slow down during the holidays, law firms often experience their busiest time when accounting tasks demand attention.

The good news? With the right preparation and systems in place, year-end accounting doesn’t have to be overwhelming. Whether you’re a solo practitioner or leading a small firm, taking these proactive steps now will set you up for a smooth transition into the new year and help you avoid headaches when tax season arrives.

Start With Your Trust Accounts

For law firms, year-end preparation must begin with your client trust accounts. Trust accounting compliance isn’t just good practice. It’s a legal requirement that protects both your clients and your license to practice.

While the accounting for the year cannot be completed until after the year closes, going into December you should complete a three-way reconciliation of your trust accounts through at least the end of November – this will make your year-end workload much more manageable. This means ensuring that three key numbers match: your bank balance, your trust liability balance in your accounting software, and the total of all individual client ledger balances in your practice management system. Any discrepancies need to be identified and resolved to be ready to complete the 3-way reconciliation for December.

If you’re discovering inconsistencies during this process, you’re not alone. Trust account management ranks among the top reasons attorneys face sanctions in many states, largely because there isn’t a straightforward system for managing these accounts, and many attorneys came to law practice without formal financial training. Working with accounting professionals who specialize in law firm trust account management can help you establish compliant systems that protect your practice year-round.

November is a Special Month

While most people focus on their accounting in January, after the year end, we believe that November is a special month, and that business owners should pay special attention to closing out the books through November. There are multiple reasons for this, with the main ones being:

Getting your accounting cleaned up through November will reduce the amount of catch up needed in January, when the various tax/reporting forms are also due
It will give you a better picture of your firm’s performance for the year, so that you can better estimate the amounts of employee bonuses, pre-holidays partner draws, and charitable contributions to be done before the year-end

With the books clean through November, your year-end accounting in January will be a cinch.

Tackle Those Outstanding Invoices

Year-end is also the perfect time to review your accounts receivable and make a final push on collecting outstanding invoices. According to recent industry data, the average law firm has approximately 93 days (per Clio Legal Trends Report) worth of work that is either unbilled or unpaid at any given time. That’s nearly three months of revenue sitting on the sidelines instead of working for your firm.

Here’s what makes this particularly costly: invoices lose 12-15% of their value for every 30 days they remain unpaid. An invoice that’s been outstanding for 90 days isn’t just a cash flow problem; it’s actively eroding your profitability.

Before the calendar turns, take these steps:

Review all unbilled time and expenses . Every hour of work you’ve completed but haven’t billed represents revenue you’ve earned but can’t count until you invoice it and get paid. Make it a priority to get these invoices out the door before year-end.
Follow up on aged receivables. Those invoices from August and September aren’t going to collect themselves. Send friendly payment reminders, and consider offering payment plans for clients facing financial constraints. The older an invoice gets, the less likely it is to be paid in full.
Evaluate your billing practices. If you’re consistently struggling with collections, it might be time to reconsider your approach. Designing a more effective accounting system that includes immediate billing after engagement completion, electronic payment options, and setting more clear client expectations can dramatically improve your collection rates in the new year.
Even if your standard practice is to send all monthly invoices at the end or the beginning of the following month, do December billing early, so that your clients receive the invoices for the bulk of December work before the year-end. Many businesses want to manage taxable income by paying bills in the current year, to maximize deductions, and will appreciate the opportunity to show the expenses in the current year. You can do another billing on December 31st to capture the firm’s revenues for the year.

Get Your 1099s Ready

With the January 31st filing deadline, now is the time to start preparing for 1099 reporting. Small law firms often underestimate the complexity of properly identifying which vendors require 1099 forms and gathering the necessary information.

Create a complete list of all vendors you’ve paid more than $600 in the calendar year. This includes independent contractors, service providers, expert witnesses, process servers, investigators, and your landlord. However, remember that corporations (both S Corps and C Corps) don’t require 1099s, unless that corporation is a law firm.

Ensure you have current W-9 forms on file for all 1099-eligible vendors. If you’re missing any, reach out, before the year-end, rather than scrambling in late January. The best practice is requiring a completed W-9 before paying a vendor’s first invoice, but if you haven’t been doing this, it’s worth implementing.

Keep in mind that payments made via credit card don’t count toward the $600 threshold, as these will be reported by the merchant processor. However, payments made by check, ACH, or debit card do count and must be reported.

For detailed guidance on 1099 requirements specific to law firms, including special considerations for legal fees and case-related services, make sure you’re following current IRS guidelines to stay compliant.

Review and Reconcile All Accounts

December is your opportunity to ensure everything in your books is accurate before you close out the year. This means reconciling all bank accounts, credit cards, and any loans and lines of credit you maintain.

Look for duplicate transactions, missing entries, or expenses that were coded incorrectly. These issues are much easier to fix before year-end than after your accountant has started preparing your tax returns. Pay special attention to case-related expenses that should have been billed back to clients but weren’t. This revenue leakage can add up to substantial amounts .

Remember that the purpose of reconciliation is to identify and resolve any uncleared transactions, such as uncashed checks, which need to be voided and perhaps re-issued. Erroneously recorded deposits and expenses need to be cleared out, so as not to affect the financial reports.

Also review your fixed assets and depreciation schedules. If you’ve purchased significant equipment or made improvements to your office space, make sure these are properly recorded and classified for tax purposes.

Evaluate Your Technology Stack

Year-end is an excellent time to assess whether your current software is serving your firm well. Are you using practice management software that integrates cleanly with your accounting system? Or are you spending hours each month on duplicate data entry and reconciliation?

The right combination of tools, typically practice management software for case-level details paired with dedicated accounting software for financial performance tracking, can save you significant time and reduce errors. If you’ve been considering making changes, it is best to start at the beginning of the year, in order to have all the financial reports for the year come from the same system.

If such a change is in your plans, you should start preparing for it now, so that at the beginning of the year you can be up and running. Such preparation typically includes importing the data, making necessary configurations, and training staff on the proper procedures to use the new system.

Likewise, if you are considering changing your payroll provider, the best time to do this is at the beginning of the year. This way you will avoid having to submit tax forms from multiple providers. There is also more paperwork needed with the mid-year payroll switch, and using the same provider for the full year helps avoid it. To prepare for the switchover, you should set up your company settings and employees with the new provider before the year-end.

Plan Your New Year Financial Strategy

Once your year-end tasks are complete, shift your focus forward. Review your current year financial performance to identify trends and opportunities. Which practice areas were most profitable? Where did you experience unexpected expenses? How did your actual cash flow compare to your projections and the previous year?

Use these insights to set realistic financial goals for the coming year. Consider whether you have at least two months of operating expenses in savings (a crucial safety net for managing irregular cash flow patterns common in legal practice). If not, building a reserve for 3 to 6 months should be a priority in the new year.

Also evaluate your pricing and fee structures. If you’re consistently collecting slowly or writing off significant amounts of time, it may be a sign that your engagement terms need adjustment.

Don’t Go It Alone

For many small firm attorneys, the demands of year-end accounting preparation can feel overwhelming on top of client responsibilities. If you’re feeling stressed about your books, unsure whether your trust accounts are compliant, or simply want to start the new year with more financial clarity, consider scheduling a Financial Health Assessment.

Professional accounting support isn’t just about compliance. It’s about creating systems that give you peace of mind so you can focus on practicing law rather than managing spreadsheets. The right partner brings specialized expertise in legal accounting complexities, helps you learn from common pitfalls without experiencing them firsthand, and provides the financial insights you need to make informed strategic decisions to grow and run a profitable firm

Your Year-End Action Plan

To summarize, here’s your streamlined checklist for closing out the year:

Complete three-way trust account reconciliations and resolve any discrepancies.
Invoice all unbilled time and expenses for the year, and follow up on aged receivables.
Reconcile all bank accounts, credit cards, and lines of credit, and account for any uncleared transactions.
Compile your vendor list and gather W-9 forms for 1099 preparation before the year-end.
Review fixed assets and depreciation schedules for accuracy.
Assess your technology stack ahead of time to be ready for January 1st.
Analyze the current year’s financial performance and set goals for the new year.

Remember, every minute you invest in getting your books organized early is time saved during tax season. More importantly, it’s time you can redirect toward serving your clients and growing your practice. With the right systems and expert support in place, your firm’s accounting can transform from a year-end headache into a powerful tool for sustainable growth and profitability.

Mark Khazanovich is Director of Operations for KORE Accounting Solutions, a future-focused management accounting firm specializing in providing legal professionals and business owners with the data and insights they need to stay compliant and run more profitable businesses.