05 Jan Five Cash Flow Resolutions Every Law Firms Should Make
If you plan any growth, you need to ensure that your cash flow remains positive throughout the year. Here are a five cash flow resolutions that can help you plan for and mitigate any cash flow problems.
1. Build a Cash Flow Forecast
Cash flow problems often come as a surprise, so the best way to avoid them is to spot them and mitigate the impact ahead of time. You’ll need to create, maintain, and constantly revisit your cash flow forecast. This exercise will help you build an operational picture of when cash is due to come in, when it’s due out, and what money you anticipate will be left over. You can also factor in those pesky late-paying clients and how that impacts your cash situation.
2. Use a comprehensive financial system specifically built to meet the needs of your Law Firm
Still using QuickBooks and Microsoft Excel for all things business accounting? QuickBooks is fine for some of the basics, but as your Law Firm grows, QuickBooks isn’t designed to grow with you. Without a good time, billing and accounting system and proper reporting, your firm cannot reach its maximum potential. Time is money for a law firm, so stop entering information twice.
3. Manage your Client Trust Account (IOLTA) Like a Pro
Common lawyer trust account mistakes mismanaging a trust account can have terrible consequences for a lawyer’s career, sometimes even to the point of disbarment. Lawyers tend to make three common mistakes in managing IOLTA Trust Account:
- “borrowing” money from the account
- A second major mistake often arises out of a lack of understanding about how a trust account is supposed to work
- The third major way that attorneys screw up their trust accounts is by failing to keep detailed records of each client’s trust account transaction.
4. Manage your Expenses and utilize tax deductible
If you’re at all interested in maximizing your tax deductions, then you need to be all over your expenses as they happen. That starts with understanding what you can expense and what you can’t.
5. Shake Up Your Invoicing & Collections Process
Creating an efficient invoicing workflow in your firm may seem like a daunting task, but rest assured, it’s an attainable goal. Remember, your bills are most important piece of paper sent to your client. Getting paid on time is absolutely critical to law firms.
6. Law Firms Need Legal Accountants
Law Firms absolutely must have a legal accounting department no matter the size of the law firm. When looking for an accountant for your law firm it is important to consider the unique set of needs and regulations that law firms need to meet when it comes to accounting.
Why is Legal Accounting so important?
With so much involved in running a law firm, legal accountants definitely have their challenges. It’s important to consider exactly why all law firms require a solid legal accounting department.
7. Financial Management Strategies Enhance a law Firm’s Success
Managing partners, financial partners, members of executive committees and administrators must devote more of their time today to planning and managing their firms’ finances and those functions that improve the cash flow. A well conceived budget and business plan offers a road map for the future. Financial statement analysis records history and will tell you whether you are on or off course, positively or negatively. Without appropriate planning, controlling cash flow and improving financial management are impossible.