Written By Devon Thurtle Anderson, CEO of Financial Consulting Firm, Skepsis
When I first left my law practice to become a law firm bookkeeper and financial strategist, I was shocked to discover how many law firms struggle with cashflow. Even more surprising was that this struggle isn’t just limited to a few seemingly rag-tag solo general practice firms. To the contrary, when I had a chance to look under the hood at dozens of law firms’ books and financial records – including law firms I had always seen as hugely successful – I learned that almost every law firm has a cashflow problem within any given 12-month period. So, as part of my bookkeeping and consulting services, I set out to change that.
Today, we’re going to change that for your firm, too. And we’re going to do it without any financial reports or financial mumbo-jumbo. Instead, we’re going to focus on simple strategies you can implement today to see immediate improvement in your firm’s cashflow. We’ll also discuss how to modify those strategies to improve your firm’s cashflow even in times of famine, like COVID.
The easiest and quickest way to begin improving your law firm cashflow is not to work more, or raise rates, but instead, to deposit money you’ve already earned. So, start your cashflow turnaround by implementing an effective collections process with the following key elements:
Pro Tip: Sometimes, as attorneys, we can’t suspend a case because it may cause a client’s rights to lapse. In that situation, offer to suspend the entire case except for the rights-preserving action (eg, timely responding to discovery requests, or timely initiating an administrative process), and negotiate a pre-paid flat fee for that limited scope of work.
The important takeaway here is: When collecting from clients, turn your collections mindset inside out. It’s not about squeezing firm money out of clients. It’s about the client and their situation, and what you can do to help them solve their payment problem creatively and cooperatively.
Now that we’ve collected on several past due accounts, let’s turn to ways we can get that money more easily in the next cycle.
More clients will pay if you make it easy for them, and you’ll see the returns in both improved payment rates and happier clients.
A common mistake that many attorneys make is “working ahead” of client funds. When cash is scarce, it can be easy to dive into billing as much time as possible to get the cash flowing in. But your billable hour is worthless unless it’s paid, so structure your work strategy to maximize paid hours, not billable hours.
Pro Tip: There’s a theme here: We’re turning law firm collections inside-out to make it a client-centric process. When we bill on that delinquent case, we’re piling more debt onto a client who may, or may not, be able to bare it. Do your client a favor, and give them what may very well be some much-needed financial breathing room.
No, I’m not talking about ethics rules here – I’m talking about financial business savvy. Attorneys have held funds in trust as a standard practice for decades. But many attorneys rarely stop to think about why we require trust deposits from clients, and how to use trust funds effectively. The purpose of trust funds has traditionally been to provide the firm with “insurance” for client non-payment. But, to keep that “insurance” in force, the trust account needs to stay adequately funded.
The purpose of trust deposits is to make sure the attorney gets paid. But those deposits are ineffective if not used strategically.
This article focuses on simple steps to immediately open the valve of cashflow for your law firm, but there are many other simple strategies you can implement to break it wide open. Once you’ve mastered the income side of the cashflow equation, consider other angles of attack, from building up firm “rainy day” reserves (without picking your own pocket), to an “expense diet” that can be quite surprisingly simple and painless to achieve. Robust law firm cashflow is rarely intuitive or even logical, but it is absolutely within your firm’s grasp.
Devon helps law firms make positive financial decisions that save both time and money.
After running her own law practice in Washington, Oregon, and California for over 15 years, Devon has put her firm management expertise to work helping attorneys ease the administrative burden and improve their bottom lines with bookkeeping and strategic financial management. Her whole-firm approach includes helping firms
manage their trust accounts and maintain complete RPC compliance in all aspects of their financial record-keeping and funds management.
Get in touch with Devon at skepsistech.com