Phantom income is a concept that can complicate year-end financial planning for law firms. It refers to taxable income reported by a firm without a corresponding cash outflow to owners.  For law firm partners, this can mean owing taxes on income they haven’t yet received in cash, affecting both the partners’ personal finances and the firm’s overall financial stability.

As the end of the year approaches, one of the most crucial aspects for law firms is accurately projecting income and cash flow. This step not only sets the stage for sound financial management but also directly impacts partner compensation by providing a clear view of expected earnings.

Six questions that managing partners, executive committees and the like should ask themselves to ensure they can get the most from their team to help successfully run the business.

Law Firms need to be earning interest on idle cash

Your budget should align with your Firm’s strategic goals.  Even if you don’t have a big bow on your strategy or like most, just have a general idea of what you would like to do in the coming year, you can still benefit from a well prepared budget.

While usually not financial experts, Managing Partners of small and mid-sized law firms still need to be able to set expectations of their finance and accounting team.