Written By: Kirsty Roux
October has a particular energy inside a law firm and I see it firsthand in law firm consulting. It is the time of year when the calendar feels suddenly short, when you are juggling client deadlines, closing out billings, and preparing for conversations about compensation and bonuses.
It is also Financial Planning Month, which makes it the perfect time to slow down and take a clear-eyed look at how your firm is managing its money, because as much as we all want to celebrate success and show appreciation to our teams, those decisions have to be grounded in one thing: profitability.
I say this not as an outsider with a spreadsheet, but as someone who has sat in the managing partner’s chair, balancing excitement and anxiety in equal measure as December approached.
Cash Flow: The Real Story Behind the Numbers
Every firm, big or small, has its own rhythm when it comes to cash flow. You can have record billings on paper and still feel financially stretched because the timing does not line up. Clients delay payments, settlements drag, and that “expected” December cash never fully materializes.
Meanwhile, your outflows are fixed. Salaries, rent, taxes, guaranteed bonuses, and insurance premiums can all hit at once. That is why the best firms do not just track revenue. They forecast cash flows month by month. They look at when money actually lands in the account and plan their bonus discussions accordingly.
A smart practice is to model two or three cash flow scenarios: best case, expected case, and conservative case. Then, base your year-end bonus pool on the most conservative projection. That discipline keeps firms steady when the unexpected happens, and it often does.
The December Trap: Overestimating What’s Available
Many firms overcommit in December because they mistake paper profit for available cash. I have seen it too often: partners eager to reward the team, only to realize in January that collections did not keep pace.
To avoid this, start forecasting now. Review your accounts receivable and collections pattern through the end of the year. Identify clients that historically pay late and build that into your assumptions. If necessary, consider incentivizing collections earlier in the fourth quarter so you can confidently assess what is real before promising payouts.
The goal is not to delay generosity. It is to deliver it responsibly.
Bonuses Should Follow Profitability, Not Habit
Here is a truth that can make people uncomfortable: bonuses are not entitlements, they are reflections of team performance and a profitable, well-managed firm.
Too many firms set bonuses based on what they usually give or what they think competitors are doing, but bonuses disconnected from actual profitability create long-term instability. If your profit margin shrinks, yet bonuses stay flat or increase, you are training your team to expect rewards regardless of business performance.
Linking bonuses to profitability does not make you cautious; it makes you strategic. It reinforces the message that everyone’s effort contributes to the firm’s success and that financial outcomes matter. When the firm wins, everyone wins.
Communication Is the Unsung Hero of Financial Health
In my experience, firms that talk openly about money make better decisions. Transparency builds trust, especially around compensation. Consider hosting a short “state of the firm” session during the year. Share how collections are trending, what expenses are on the horizon, and how bonuses will be determined.
When people understand the logic behind financial decisions, they are far more likely to support them, even if the numbers are not as high as they hoped. It is also a good time to remind your team that law firm economics are seasonal. January often brings a natural dip in revenue, so holding some reserves is not being cautious, it is being responsible.
Get Creative With Incentives
Bonuses are not the only way to show appreciation. If profitability is tight or cash flow timing is tricky, look at alternative incentives. Professional development stipends, paid conferences, additional paid leave, or mentorship and leadership opportunities all carry meaningful value.
What matters most is that rewards feel intentional, not reactionary. They should reinforce the culture you are trying to build, one that values contribution, growth, and shared accountability.
Think Ahead to 2026
While bonuses reflect the past year, incentives can shape the next one. Use this time to set clear, measurable goals that support profitability going forward, such as improved realization rates, client retention, cross-selling, or teamwork on larger matters.
You can also consider offering smaller quarterly incentives tied to these metrics rather than saving all rewards for December. This not only stabilizes cash flow but also keeps motivation and focus steady throughout the year.
Responsible Generosity: The Hallmark of Strong Firms
There is a certain pride that comes from paying good bonuses. It is a tangible way to recognize effort, loyalty, and results. But generosity without financial clarity is risky. The firms that thrive long-term are the ones that connect generosity to sustainability.
Financial Planning Month is not about cutting back. It is about leading with intention. If you want to pay your people well, make sure the firm’s financial foundation supports it.
As someone who has been both the lawyer working hard for a bonus and the partner responsible for paying it, I can say this with certainty: the best gift you can give your team is a stable, thriving firm that rewards success because it can, not because it feels pressured to.
So, as you close out the year, run the numbers honestly. Communicate clearly. Celebrate your team thoughtfully. And remember, profitability is what keeps both the business and the generosity alive.
MB Law Firm Consulting partners with firms to strengthen financial discipline, align bonuses with performance, and plan for long-term success. Reach out to our team to finish the year strong and start the next one even stronger. Contact us today.