Every law firm has been there. Cash is tight, payroll is due next week, and you’re not sure where the money is coming from.
Long term, you can liberate yourself from this stress with the right strategic approach to financial management. (For more on that subject, including an overview of the six key financial metrics that your firm MUST be tracking, watch this short video.)
In the short term, you’ve got three basic options to generate the cash you need.
One, you can sell more work. You can rattle the bushes looking for cases. Work your referral sources. Call past clients and ask them what else you can take off their plate.
Two, you can get more work done. How much work is currently in-process? Speed up the production of your factory, get the work done ahead of schedule, and bill for it earlier than you thought you’d be able to.
Three, you can collect Accounts Receivable. What does your A/R sheet look like? If there’s a significant amount of outstanding billings, the quickest way to generate cash is to go after it.
Now, here’s what NOT to do: Don’t borrow. And if you absolutely must borrow, you must have a plan of action to make a profit with the borrowed funds.
There’s a difference between performing debt vs. non-performing debt. A law firm that loses money because it has no operational or business plan borrows non-performing debt.
A firm that borrows the exact same amount, on the exact same terms, can make it performing debt by deploying those borrowed funds against a business plan that’s been reasonably calculated to service the debt and make a profit for the business.
Sadly, in the absence of either a written budget, cash flow projections, budget variance report or written business plan, most struggling business owners fail to make this critical distinction and wind up digging a hole for themselves. They can often be heard yelling up to their rescuers “Don’t bother me right now, can’t you see I’m busy digging!”