Law Practice Management Asked and Answered Blog

Category: Statement

Aug 18, 2015

Law Firm Financial Management – Concern With Income Statement Showing Operating at a Loss


I am a new partner in our law firm of 6 attorneys. I was an associate for seven years and was just made an equity partner and just received a copy of this month's income statement. The income statement shows the firm operating at a loss. I was startled and took a look at past years' statements as well. All are showing a small loss. Am I looking at these correctly? How can a firm operate at a loss for seven years in a row and still be in business. I would appreciate your comments.


My guess is that the firm is running all or a portion of equity partner compensation though as expense on the income statement. Other personal items may also be run through the firm as well. Check with the firm's bookkeeper or outside accountant to see if this is the case. If this is the case add the total paid to equity partners back to the net income or loss on the income statement. This will give a better picture of the actual "pie" .

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John W. Olmstead, MBA, Ph.D, CMC

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