Q&A with Adrian Taylor, CPA, PFS, Principal at YHB | CPAs & Consultants
Law firms spend their days helping clients navigate complicated decisions, but running a successful practice comes with its own financial challenges. Between rising costs, changing technology, tax considerations, contingency-fees, unpredictable settlement timing and partners approaching retirement, there’s plenty for firm leaders to think about beyond their caseloads.
Adrian Taylor, a Principal at YHB | CPAs & Consultants, has spent more than 25 years helping business owners navigate tax planning, financial decisions, and long term business strategy. We spoke with Adrian about some of the financial considerations law firm leaders should be paying attention to.
Q: Law firms often measure success through billable hours and revenue. What financial indicators should partners be watching to understand how profitable their firm really is?
Revenue is important, but it doesn’t tell the whole story. You can have a really busy practice, bring in more work than ever, and still wonder why there isn’t more money left at the end of the year.
I always encourage business owners to look beyond what’s coming in and understand what’s actually being kept. For law firms, that means paying attention to overhead, compensation costs, cash flow, and profitability across different areas of the practice.
Collections are another big one. Work you’ve completed but haven’t billed, or invoices that haven’t been paid, can tie up a surprising amount of cash. In fact, Clio’s 2025 Legal Trends data found that the median law firm had 93 days of revenue tied up in unbilled work and outstanding invoices. That’s significant!
My advice is to get in the habit of reviewing a few key financial indicators every month, not just at tax time. You don’t need a hundred reports. You need the right information to understand what’s working, what isn’t, and where you might need to make adjustments.
Q: What are some of the most common tax planning opportunities law firm owners overlook, particularly when balancing the financial needs of their firm with their personal finances?
Generally, one of the biggest things I see with business owners is that they treat their business finances and personal finances as two separate conversations. In reality, they’re closely connected, especially when you’re an owner in a professional services firm.
For example, a partner might be focused on maximizing distributions today without fully considering how those decisions affect estimated taxes or future cash needs. Cash flow and estimated taxes can be a pain point – intentional coordination of partner distributions with personal tax liabilities can minimize this challenge.
The firm’s entity structure and how partners are compensated can also have significant tax implications. For attorneys practicing across DC, Maryland, and Virginia, it’s especially important to understand how income is taxed in different jurisdictions. The rules aren’t necessarily the same, and where you live, where you work, and how your firm is structured can all matter. Evaluating pass-through entity tax elections and multistate taxation can often yield significant tax savings for the owners and or reduce unnecessary nonresident state filings.
I also think people underestimate the value of planning early. By the time you’re sitting down to prepare a tax return, many of your opportunities for the prior year have already passed. A conversation in the middle of the year can be much more valuable than one in April. For example, a conversation now about maximizing contributions through a 401(k), profit-sharing or cash balance plan particularly for highly compensated partners can have a positive impact before the time crunch surrounding the tax deadlines.
Q: Many law firms have partners approaching retirement. What should firms and individual partners be doing now to prepare financially for those transitions?
Start earlier than you think you need to. That’s probably the biggest piece of advice I can give.
When a partner retires, there are really two financial plans that need to work together. There’s the individual’s plan for retirement, and there’s the firm’s plan for how to fund that transition without putting unnecessary pressure on the remaining partners.
Those don’t always line up as neatly as everyone hopes.
For the retiring partner, it’s important to understand what their ownership interest is worth under the firm’s agreements, how and when they’ll receive payments, and what the tax
consequences might look like. For the firm, the questions are about cash flow, future compensation obligations, and whether the next generation of partners is financially prepared to take on ownership.
I’ve found that these conversations are much easier when people have time to evaluate their options. Waiting until someone announces they’re retiring next year can leave everyone with fewer choices. And don’t forget that succession isn’t just about retirement. It’s also about making sure the business remains financially healthy for the people who will lead it next.
Q: Between rising costs, competition for talent, and AI, the economics of running a law firm are changing. What should firm leaders be doing today to protect profitability and prepare for what’s next?
I think the biggest thing is being willing to question how you’ve always done things. The legal industry has had a pretty successful business model for a long time, but that doesn’t mean every part of it will work the same way five or ten years from now.
Take AI, for example. If technology allows an attorney to complete certain work in half the time, that’s great from an efficiency standpoint. But if you’re billing strictly by the hour, what does that mean for revenue? Can you take on more clients? Should you rethink how certain services are priced? Those are financial questions just as much as technology questions.
And the industry is already seeing that tension. The 2026 Thomson Reuters and Georgetown Law report found that law firms averaged 13% profit growth in 2025, even as rising expenses and changing client expectations raised questions about the sustainability of that growth.
My advice would be to build a financial plan that looks beyond the next twelve months. Think through what happens if compensation costs continue rising, if your staffing needs change, or if certain types of work become less profitable.
You don’t have to predict the future perfectly. But you should understand how different scenarios might affect your business so you can make decisions before you’re forced to.
At the end of the day, attorneys are in the business of helping other people make informed decisions. It’s worth making sure they have the same level of financial insight when it comes to running their own firms.
Meet Adrian
Adrian Taylor, CPA, PFS, has been with YHB since 1999, providing tax planning, compliance, and consulting services to businesses, their owners, and individuals. She specializes in helping business owners, including those in professional service industries, navigate complex tax matters, improve financial performance, and make informed strategic decisions. As a Personal Financial Specialist (PFS), Adrian combines her tax expertise with financial planning to help clients develop practical strategies for long term success. She is an active member of the AICPA and VSCPA and has served on the boards of the Top of Virginia Regional Chamber and the Dental Clinic of Northern Shenandoah Valley.