Week 1: The Financial Story — How to Read & Communicate Financial Information
- Terrell A Turner
- Jul 2
- 7 min read
By Terrell A. Turner, CPA
Whether you’re steering a large practice or helping manage a solo firm, your ability to lead depends heavily on your financial fluency. Many firms struggle not because they aren’t doing great legal work, but because no one is truly owning the financial narrative. That’s where leadership through financial storytelling comes in.
To lead effectively, you need to master two things:
The ability to read financial information.
It’s not just about reviewing reports—it’s about interpretation. Can you look at a profit and loss statement and understand what’s driving your profitability? Can you identify whether revenue increases are meaningful or whether costs are quietly creeping up? Financial fluency allows you to catch problems early and capitalize on momentum before it fades.
The ability to communicate financial information clearly to others.
Many talented team members are sidelined because no one explains how the firm’s financials connect to their role. When you explain the numbers in everyday language—and link them to the firm’s goals—you turn confusion into collaboration. Your team begins to think like owners, not just employees.
Your Role in Leadership: The Director of the Movie
As a leader, you’re more than a task manager—you’re the director of your firm’s financial story. That means connecting the dots, clarifying the vision, and guiding your team scene by scene.
Think of your favorite movie.
You remember the plot, the characters, the emotional payoff. You probably also remember how it was told. Great leaders use the same principles. They don’t just recite numbers—they create narratives that energize the team. For example: “We boosted revenue 20% last quarter because we tightened intake and streamlined billing—now let’s build on that momentum.”
Turn financials into a shared mission.
When you frame the numbers in a relatable way—like mapping revenue to impact, or linking profit to job security and growth—you shift the culture. Your team sees the bigger picture. They care about margins, time efficiency, and client satisfaction because you’ve shown them how those things connect to success.
Act 1: The Main Character and the Plot
(The Profit & Loss Statement – Revenue, Costs, and Team)
In any compelling story, the main character drives the plot forward. In your financial story, that main character is your revenue—and everything else either supports or threatens it.
Revenue – Your firm’s main character.
This is the money you earn from delivering legal services—hourly billing, contingency fees, retainers, or flat fees.
Analyze how revenue is trending: Are there seasonal spikes? Are certain services or practice areas outperforming others?
Consider how revenue ties to effort. Are you billing more, collecting faster, or increasing rates without scaring off clients?
Direct Case Costs – The “setup” of your story.
These are the expenses that scale directly with revenue, like court fees, filing expenses, expert witnesses, and contract paralegals.
Tracking these costs helps assess margin per case. If you're spending heavily on certain types of matters, is the revenue worth it?
Direct costs should rise with revenue—but in a healthy ratio. Watch for “cost creep” where these expenses eat too much of your top line.
Legal Team Compensation – The stars of your show.
This includes base salaries, bonuses, payroll taxes, and benefits for attorneys and legal producers.
Ask yourself: Is your team’s output aligned with their cost? Are you structuring bonuses based on performance metrics like billable hours or collections?
A strong legal team is your engine, but only if they're well-managed, properly resourced, and working efficiently.
Leadership Insight:
Your “Act 1” defines whether your firm is set up for success. If revenue is strong but costs are growing faster, or if your legal team isn’t producing enough to justify payroll, the plot needs revision. Focus on revenue quality, delivery efficiency, and the balance between production and compensation.
Act 2: The Drama and the Supporting Cast
(The P&L – Overhead and Operational Efficiency)
Every story needs supporting characters. In your firm’s finances, that means the roles, systems, and resources that don’t directly earn revenue—but are crucial to keeping the firm running.
Marketing & Business Development – The spotlight crew.
This includes advertising, referral programs, SEO consultants, email campaigns, sponsorships, and events.
Ask: Which marketing channels are actually generating leads that turn into paying clients? Where are we overspending?
Track your client acquisition cost (CAC) and compare it to client lifetime value (CLV). Good marketing is an investment—not a guessing game.
Administrative & Support Staff – The backstage team.
These team members make everything run: intake coordinators, receptionists, bookkeepers, and HR.
Evaluate productivity: Are support roles freeing attorneys to bill, or bogging them down with manual work?
Consider automation opportunities. If a system can replace repetitive tasks, it might be time to restructure roles.
Software & Tools – The set, props, and lighting.
Think case management systems, billing platforms, CRM tools, cloud storage, or even Microsoft 365.
Review your tech stack annually: Are you paying for unused licenses? Are tools being fully utilized?
The best tools improve communication, speed, and compliance. If they aren’t doing that, reallocate the budget toward better ones.
Leadership Insight:
Overhead is necessary—but uncontrolled overhead is deadly. Get curious, not reactive. Ask: Is this expense helping us make money, save time, or improve service quality? If not, it's a supporting actor that needs to be recast or cut.
Act 3: The Wrap-Up and Credits
(Net Income and the Final Takeaway)
This is where your financial story resolves—and sets the tone for what comes next.
Other Income/Expenses – The subplots.
Interest earned, equipment sold, merchant fees, one-time donations or penalties—these are financial events that aren’t central to your operations, but still impact the ending.
While they can distort short-term results, tracking them separately helps you maintain a clear picture of core profitability.
Net Income – The final score.
This is the most important number for partners and leaders: what’s left after every dollar earned and spent.
It fuels bonuses, investments, and reserves. If you're consistently profitable, you have room to grow. If you're not, it’s time to rework the plot.
Leadership Insight:
A profitable month doesn’t mean you can relax—but a loss doesn’t mean panic, either. You need to contextualize this number: What changed? What’s within our control? Are we building toward a strong year, or hiding a structural problem?
Understanding the Balance Sheet: The Cast & Setting
The P&L tells the story of a period. The Balance Sheet tells the story of your current position. It's the financial equivalent of your set design, crew roster, and asset inventory.
Assets – What you own.
This includes checking accounts, client trust balances, outstanding invoices (accounts receivable), equipment, prepaid expenses, and deposits.
Healthy firms keep a close eye on liquid assets—especially cash. Are your client payments sitting in A/R too long? Are trust balances being tracked properly?
Liabilities – What you owe.
Unpaid vendor bills, loans, credit card balances, and tax liabilities.
Are your liabilities growing month after month? That could signal cash flow problems or risky financial decisions.
Equity – What’s left after everything else.
Partner contributions, retained earnings, year-to-date profit or loss.
Growing equity means increasing firm value. Flat or negative equity means your firm may be funding operations with debt or delayed payables.
Pro Tip:
Review your balance sheet quarterly at a minimum. Look at your current ratio (current assets ÷ current liabilities) to assess financial flexibility. A healthy ratio is usually above 1.5 for small firms.
Cash Flow Statement: Following the Money
The Cash Flow Statement answers a simple but crucial question: Where did the money actually go? It uncovers disconnects between profits and liquidity.
Operating Activities – Core transactions.
All money in and out related to daily operations: client payments, salaries, rent, supplies, vendor bills.
Are you consistently cash positive from operations? If not, you're relying on outside funding to keep going—which is risky.
Investing Activities – Long-term planning.
Includes purchases or sales of assets: new laptops, furniture, leasehold improvements.
Watch for patterns. Are you investing in tools that reduce costs or improve service? Or just spending to “feel” productive?
Financing Activities – Borrowing and equity.
Includes loan draws, repayments, partner distributions, and capital infusions.
Frequent cash infusions might signal deeper issues. Be cautious about taking on new debt without a path to ROI.
Leadership Insight:
You can have a record revenue month and still bounce checks. That’s why cash flow must be reviewed monthly—even if you outsource bookkeeping. Always ask: Are we covering operations from revenue? Do we have enough buffer for slow periods?
Communicating Financial Information: Telling the Story with Confidence
Your ability to communicate financial data directly impacts your team’s alignment, motivation, and trust. Here's how to do it right:
Start with the conclusion.
Lead with clarity: “This month, we brought in $210,000 and netted $35,000 in profit, up 25% from last month.” Then explain why it happened.
Break it down into causes.
Did revenue grow because of new clients, or better collections?
Did expenses fall due to lower marketing spend or better time tracking?
What’s the actionable insight moving forward?
Tailor your story to the audience.
Partners: Focus on ROI, strategic adjustments, and long-term impact.
Team Leads: Emphasize efficiency, productivity metrics, and service quality.
Staff: Highlight how their day-to-day performance drives revenue and costs.
Use analogies that resonate.
“Think of this like building a case: The numbers are your facts, the trends are your evidence, and the strategy we choose is the closing argument.”
Final Tip:
Avoid overwhelming people with spreadsheets. Use visuals, trends, and storytelling to make the data come alive.
Quick Summary: The Movie Trailer for Week 1
Main Idea: Financial statements tell a story—and law firm leaders must learn to read, interpret, and explain that story with clarity and confidence.
Your Job This Week:
Understand the structure of your P&L, Balance Sheet, and Cash Flow Statement.
Identify what each section means in terms of firm performance.
Practice explaining the numbers in simple, engaging terms.
Why This Matters:
Mastering this skill transforms you from a passive observer to a confident leader who can align teams, identify opportunities, and drive sustainable growth.
Reading Assignments
(by Terrell Turner) - How to read financial statements: look at prior ABA articles that you have posted
(by Terrell Turner) - This Article.
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