The two‑week diagnostic
Three years of returns and a current trial balance, read properly. Fixed fee, written findings, yours either way.
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Law firms, architects, engineering practices and agencies: partner compensation, unbilled work in progress, and revenue that lands long after the effort.
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What changed, what it means for a private company, and what to do before the quarter closes. Nothing else, ever.
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Law firms, architects, engineering practices, consultancies and agencies. Partner compensation, unbilled work in progress, and revenue that arrives long after the effort that produced it.
There is no inventory, almost no fixed assets, and the entire value of the enterprise walks out of the door every evening. What is left on the balance sheet is a receivables ledger, a work-in-progress figure that nobody entirely trusts, and a capital account structure written by a lawyer some years ago.
The consequence is that ordinary accounting advice fits badly. Margin analysis by product line means nothing; realization by matter and by fee earner means everything. Cash flow is not a function of sales but of billing discipline. And the largest single expense, partner compensation, is simultaneously a cost, a distribution and a political settlement.
We have enough repetition across professional practices that these are first-meeting questions rather than third-year discoveries. You should not have to explain retainage, origination credit or why the June cash position always looks like that.
One caution worth stating plainly: a great deal of what troubles professional firms is governance rather than accounting. We will tell you when the answer sits in the partnership agreement rather than in the ledger, and work alongside your counsel instead of around them.
If two or more of these are live for you right now, the diagnostic will pay for itself before it is finished.
“Why is the firm profitable on paper and short of cash every June?”
Because profit is recognized when the work is done and cash arrives when the client decides to pay. Partnerships that bill in arrears live with a permanent gap between the two, and the gap widens exactly when partner draws are largest.
“What is the unbilled work in progress actually worth?”
Less than the ledger says, in almost every practice we have looked at. Ageing WIP has a realization rate, and if nobody is measuring it the year-end write-off arrives as a surprise rather than a decision.
“Is the partner compensation formula still doing what it was designed to do?”
Formulas written for five partners rarely survive to twelve. Origination credit, working attribution and the equity ladder all drift, and by the time somebody raises it in a partners’ meeting it is a grievance rather than a calculation.
“We opened an office in another state. What did that cost us?”
Registration, apportionment of firm income, payroll withholding and possibly a composite return for every partner. It is nearly always more than the office lease line suggests, and it is nearly always discovered late.
Most professional firms use five or six of these. They are priced together annually rather than assembled from separate quotes.
Reading the partnership agreement before the trial balance is not standard practice. In this sector it should be.
Before anything else
Compensation formula, admission and retirement provisions, capital accounts and the buy-sell terms. Half of what looks like an accounting question in a professional firm is actually a governance question.
Weeks one to four
Ageing by matter, realization by partner, and a defensible view of what the pipeline is worth. This is usually where the first uncomfortable number appears.
Ongoing
A thirteen-week cash forecast built around your billing cycle, so partner draws are set against what will actually collect rather than what was billed.
Quarterly
Firm and individual projections run together. A distribution decision that helps the partnership and hurts four partners personally is not a good decision.
Seven more sectors where we have enough repetition to be useful on the first call.
Two weeks, a fixed fee, and a written read on both. Most firms find one thing they had privately suspected and never quantified.
