Your law firm cash flow...do you monitor well or manage well?

In my experience most small-medium law firms do not fully understand the fundamentals of cash flow, and as a result tend to be way too passive or reactive in dealing with the challenges, rather than consistently and smartly active...

The immediate, or imminent, cash flow situation, good or bad, is the outcome of a series of things you did or did not do beforehand, often some time previously...

Here are just some factors that need to be consistently dealt with:

Arranging consistent, effective, business development activity...

Controlling the number of speculative matters in which you are engaged...

Controlling the outlay of your funds on client disbursements without quickly collecting them back...

Getting client engagement management consistently right...

Not borrowing too much so interest outlays are too high...

Not borrowing too little so operations are unreasonably restricted...

Not paying off debt too quickly given your requirements for adequate working capital...

Paying down reasonable debt when you can if you have too much borrowed...

Watching the level of principals' drawings or dividend payments...

Not pricing in a pessimistic manner so margins are inherently slim...

Not remunerating fee-earners  by formulas tied to fees, especially silly ratios like 1:3 that are outdated by many decades (and were never accurate or wise anyway)...

Getting proper amounts from clients as retainers wherever commercially sound...and keeping those retainers topped up as matters progress...

Having systems that ensure clients are billed at the earliest possible time in every matter commensurate with engagement terms...

Ensuring that engagement management allows for interim billing in all appropriate matters...

Keeping level of matters per fee-earner high enough that there is always a healthy backlog of work and sound profits can be generated in the area most small firms fail to produce anything...the profit zone...

Keeping level of matters at the correct level so even hard-working fee-earners can't fall into the trap of allowing file velocity to drop below optimum possible...tying up precious working capital too long

Being indignant about debtors paying on time in full...running systems to make it clear what is required and ensuring early and commercially vigorous follow up immediately debtors are overdue...

Purchasing a series of "small" assets with cash when that was not wise in light of the firm's working capital situation...

Summary...
All too often I see firms with cash flow problems where the focus has been on the easy approaches that happen to be almost always ineffective...they analyse, monitor, assess, review or predict cash flow, often when the problems have been brewing for a long period...

What they need to be doing is the harder yards, in the areas above and others, influencing cash flow positively, controlling it, managing it and driving it...