Like many other law firms, you may be struggling to ensure your cash flow stays consistent – especially in the aftermath of the pandemic. Most small law firms also have past due accounts, which can kill cash flow and make it impossible to pay employees and bills. Regardless of your law practice’s financial health, there are always opportunities to reduce costs, improve productivity, and boost law firm cash flow.
If you’re struggling to keep your firm’s cash flow consistent, here are four steps that you can take to boost your law firm’s current cash flow.
1. Determine Your Financial Health
To gain an accurate understanding of your law firm’s finances, start by measuring and projecting your firm’s cash flow by year, quarter, and month. Begin with your fixed expenses, such as your rent and utilities; then add in fluctuating costs such as payroll and supplies as they are determined.
Once you’ve pinned down your costs, estimate how much client revenue you expect to receive. This will give you a sense of whether you’ve got a negative or positive cash flow. Coupled with the right software, you’ll be able to better understand where you’re making and losing money, and your firm’s cash flow over time.
2. Send Bills & Receive Payments Quickly
If the lawyers in your firm aren’t keeping up to date with their hours and bills, they may be losing up to 30% of their billable time! Using technology that better captures the time throughout the day for calls, texts, emails, and appointments can greatly improve your billing practices. Practice management software can also help you to send timely invoices and accept different payment options. Accepting credit cards will expedite your payment cycle and make it easier to track incoming cash. It may be worth paying a small convenience fee to a processor to get payments in the door more quickly!
3. Pay Your Bills On Time & Save Money
Paying your bills when they’re due and saving as much money as possible ensures a consistent and positive cash flow for law firms, even if you experience a seasonal slump or temporary downturn. If you pay bills after their due dates, you’re exposing your firm to late fees; if you pay too early, you’re tying up cash that you could be used for other purposes. Your firm should also have enough cash saved up to cover all of your expenses for about three months. Some law firms also establish a line of credit to ensure they have an additional financial cushion in the event of a shortfall in cash flow directly from clients.
4. Measure Your Cash Flow Over Time
The key to boosting cash flow for lawyers is to measure your cash flow over time, identifying trends and opportunities for improvement. Measuring your law firm’s cash flow and profitability will help you keep your firm on the right path. You might track the average number of days that your bills remain outstanding. You might also study the change in your working capital over time. The possibilities are almost limitless, especially with the right practice management software.
By implementing the right policies – and utilizing the right manpower and technology – you can increase cash flow for your law firm quickly and effectively.
Redirecting time and money spent on administrative tasks like timekeeping and invoicing to client-focused endeavors ensures your firm has happy and growing client rolls. Taking a data-driven approach to your firm’s finances, more accurately projecting your income and liabilities, and remaining prepared for unpredictable crises can help boost law practice cash flow for months and years to come.
