Recently I was reading an article by David Bilinsky, a practice management consultant, and Laura Calloway, Director of the Alabama State Bar’s Law Office Management Assistance Program, who were giving Lawyers advice on budget, timekeeping, leakage and dashboard reports that enable you to keep a steady eye on your cash.
As I reviewed their articles it occurred to me that most businesses have the same type of cash flow challenges and almost the same methods to solve them. Here is what I mean…
Attorneys waiting for settlement payments are often caught in a cash flow squeeze that forces some tough choices: Do they trim staff? Cut back on litigation costs? Or, worst of all, turn away a promising case?
None of those choices are attractive, but with the downturn in the economy, more attorneys find themselves facing them. Settlement amounts are down, payment schedules are slow, and credit markets are tight. And that makes the smooth running of a small law firm more difficult than ever.
We all like spending money, a fact that’s riotously conveyed in a famous Monty Python skit in which they sing a ditty called “The Money Song.” As the lyrics go, “There is nothing quite as wonderful as money, there is nothing quite as beautiful as cash… With money you can make a splash!” Unfortunately, it’s almost always easier to spend money than to earn it.
How Can You Make Sure that Your Practice is Bringing in
Sufficient Money to Cover Your Current and Future Spending Needs?
As we frequently preach, you need to generate and consistently review the appropriate financial information. Let’s review the reports that your firm can produce to gain a better handle on that all-important asset named cash.
According to the findings of a LexisNexis’s Juris Law Firm Economic Survey, the average midsize firm carries millions of dollars in unbilled and unpaid legal services. Responding firms averaged 87 days to bill and 83 days to collect, for a total cash flow cycle time of 170 days. The prior year’s survey respondents fared a little better, reporting an average cycle time of 148 days. Even though there was a different mix of firms in the latest survey group, it seems clear that midsize law firms aren’t improving in this area. Cash flow cycle times are slow across all levels of partner income performance.
Solving the Cash Flow Challenge
Before you can effectively focus in on cash flow issues, you need to know what you are aiming for regarding your financial goals. Accordingly, it starts with the firm’s budget. A law firm budget can contain varying types and quantities of detail, but for purposes of facilitating cash flow analysis, your budget should contain at least the following information:
▪ Income and expenses, by month and by category (with, we suggest, expenses increased by 20 percent, as a fudge factor)
▪ Annual billable hours expectation by lawyer, broken down by month, week and day (and incorporating work-in-process contributions)
▪ Annual collected fee expectations by lawyer (i.e., collected revenues), broken down by month
You can prepare this budget in a spreadsheet program such as Microsoft Excel, or if your firm has a more-robust accounting system, you can input the information directly into that system. A big advantage of having the budget integrated into your system is that your software should be able to automatically track actual numbers against budgeted numbers, saving you time (and money as a result).
Now, with your budget in place, the next step is to have your bookkeeper generate certain managerial and financial reports that will allow you to track how your money is coming in and how it is going out. Most accounting programs can generate seemingly countless reports, but for our purposes here, we want you to concentrate on those that will have the greatest impact from a cash flow perspective.
Weekly and Monthly Reports
To allow you to keep a handle on your financial state without overloading you with information, the primary reports for you to look at weekly are the firm’s timekeeper report and the dashboard report (discussed in depth later). The timekeeper report should be prepared each Monday. It will show you billable hours recorded by timekeeper, compared to the budget, for the week prior.
Monthly reports will go into a bit more detail and let you dig deeper into the hows and whys of what is actually happening in your firm. Here are the reports you need:
Balance sheet for the month
Income statement, by month and by year to date (YTD), compared to the budget and to the prior period last year (note: depreciation and other factors may distort your income statement for the purposes of determining accurate cash flow)
Write-up, write-down report (done on an “exception basis,” meaning you report only on those accounts that are written up or down by at least 10 percent)—by client, by file and by lawyer and showing effective hourly rate by lawyer (i.e., actual billings divided by all time recorded for the billed file, not just the time actually billed)
Accounts receivable (A/R) balance for each client, by total outstanding and by aged balances, and reporting fees due separately from disbursements due
Client activity report, including:
- Fees billed by client for each invoice
- Effective hourly rate on the fees
- Fees collected
- A/R outstanding, aged
- Accounts written off
- Trust balances
- WIP (total added this month)
- Unbilled disbursements (total added this month)
And here are some particular things to watch.
The write-up, write-down report reveals whether any particular client, file or lawyer is responsible for large write-ups or write-offs. These should, clearly, raise red flags for you. What to do in response?
We suggest you combine this report with an office policy that no write-off of more than a stated amount (for example, $1,000) can occur without the signed consent of the managing partner. This provides the lawyers with a strong disincentive to reduce fees without proper management oversight.
Also, the client activity report typically draws attention to problem clients before the problems become acute. In other words, it alerts management to the fact that certain clients may be racking up large WIP amounts while simultaneously not paying their rendered accounts. This is a recipe for cash flow trouble in the not-too-distant future, not to mention the difficulty should withdrawal become necessary, so staying on top of it through a monthly report is very important.
Each quarter should be a time of reckoning. Accordingly, your firm should produce all the previously cited reports along with two new reports: a leakage report and a profitability report. Again, these reports should show a comparison to the current year’s budget and to the prior year.
This is what the leakage report will contain: quarterly billable hours expectation x standard hourly rates (equal to each timekeeper’s billing ceiling), compared to actual billings.
The leakage report’s purpose is to determine the difference between what timekeepers could be billing as compared to what they are billing.
The profitability report takes a somewhat different format. Here is what it is designed to do: determine cost of services rendered for one hour of lawyer time; compare CoSR x hours worked on a file to actual collections; determine if your collections are below, equal to or exceed your costs of carrying the file; and determine fee realization rates, by lawyer, with amount realized/amount billed (as a percentage).
The purpose of the profitability report is to try to allocate fixed and variable costs (overhead) to each timekeeper. There are many ways of attempting to allocate costs—salaries, for example, can be simply averaged or they can be allocated using some reasonable method of determination against each timekeeper or department.
Regardless of the methods used, however, the profitability report is designed to answer one question: Did each timekeeper bill at least enough to capture the costs of handling a file in the office?
All firms have particular practice areas or lawyers that are not as profitable as others; but at a certain point, the firm needs to make a conscious decision, from a strategic position, about whether to offer legal services to clients on a “loss leader” basis. If the firm does choose to do so, then it needs to rethink how to offer those services in a way that reduces their financial drag on the firm.
The Dashboard Report Solution
The dashboard report delves closely into the factors that most directly affect cash flow, both in the short term and in the slightly longer term. Think of this report as the nerve center of your analysis. The dashboard report should be produced on a weekly, monthly and quarterly basis and provide data relating to cash flow, line of credit, WIP and client files. The Dashboard Report’s four components: cash flow analysis, line of credit analysis, WIP analysis and files/clients report.
So what are the key issues you want to look for in the dashboard report?
The first component gives you the firm’s cash-in/cash-out status for the period—the cash at the start of the period, plus any additions, less any withdrawals, resulting in the net cash at the end of the period. You then compare the net cash remaining to the expected cash needs for the upcoming period, answering the question: Do we have enough cash on hand to keep us afloat in the short term?
The line of credit component looks at the buffer remaining in the firm’s line of credit. If the net cash remaining plus the remaining buffer in the line is not sufficient to meet the firm’s expected cash flow requirements in the upcoming period, then the firm is desperately in trouble.
The third component reveals whether the firm’s Work In Progress (WIP) is increasing, decreasing or remaining steady. Increasing WIP is a sign of upcoming cash shortages. Decreasing WIP indicates potential longer-term cash flow problems.
Lastly, the files/clients component answers the question: Are we steadily opening new files? This is a major issue that you want to look at from a much longer baseline. If you are not steadily opening new files, then again, cash flow may be adversely affected in the longer term. So which lawyers are billing and collecting? More importantly, which ones are not? By arming itself with this information, the firm gains the opportunity to address productivity and profitability problems before they become crises.
In sum, the purpose of these reports is to let you maintain a steady eye on the all-important matter of cash in your firm. By doing so, we expect that, as Monty Python has put it: “You can make a splash!”
The Attorney’s Unsecured Micro Loans Solution
We understand the strain that can be placed upon the cash flow of attorneys. The time it takes for most cases to come to fruition can be very prohibitive and the need for a good solution is more a necessity than a requirement.
We provide micro loans for attorneys so that you can source the necessary finance that will enable you to have a huge impact on the success of your business when you need it. Unlike traditional banks our loans are based on the health of your company and cash flow, NOT on credit scores.
You’ll get a complete financing solution, when you want a loan of $5,000 or $250,000+ with a term of 3 months to 18 months. The easy application process consists of a simple one page application and 4 months of bank statements plus your profit & loss statement. Loans come with fixed interest and fixed payments; that are approved in 72 hours, funded in 7-10 days and have an easy 1 page application.
No hassles and no long waits for a response. This helps you can focus on running and growing your business.
We understand business – businesses need capital to work, and bank loans are tough to get, even for healthy small businesses. The difference we can make besides our exceptional customer service and our professional and experienced opinion is the reality that you can receive your funding easily and quickly. Apply for Attorney Micro Finance today…
When choosing a finance partner you should always make sure that you are dealing with a company that has an established pedigree and one that can actually do what they say. Too often we are told that companies can move heaven and earth however when it comes down to it the results can be very poor.
This is exactly the opposite of what we do here. We simply promise to listen to your requirement and respond in the most appropriate manner. So you tell us what you need and we will let you know whether we can assist. Our attorney loans are flexible. They give you the chance to decide how and when you want to spend your loan and the time frame in which to pay it back.
HOW CAN MICRO FINANCE HELP YOU WHETHER YOU ARE AN ATTORNEY?
Our micro loans for attorneys can help you to keep your cash flow running smoothly, enable you to pay for a large expensive item, or simply give you a little extra to help you pay the bills. The difference our attorney loans can make is enormous. We understand the complex regulatory environment you operate in and we can tailor our business funding to suit your needs.
WE OFFER THE FOLLOWING BENEFITS:
- Budget planning – Our unsecured loans for barristers have proven returns on investment, allowing you to spend on equipment or training while minimizing your capital outlay
- Alternative credit – We are not bound by restrictive lending issues and we have multiple sources of finance to draw upon
- Flexibility – We can cover almost all aspects of your business expenditure and the finance can be arranged to suit your requirement
(1): Micro Loan: Apply for Micro Financing Assistance Online
Our unsecured micro loan is an agreed loan not secured against business or personal assets. It has been created to allow businesses to:
- Enjoy greater financial freedom to invest as they choose
- Gain significant cash flow advantages
- Gain access to an additional line of credit
- Invest with less risk, as loans are not secured against personal or business assets.
An unsecured micro loan offers a host of attractive benefits. These include:
- No impact on existing banking arrangements –existing financial arrangements will not be affected at all
- No deposit – there are usually no deposits or pre payments required
- No invoices – usually there is no need to present invoices
- Tailored loans – agreements can be customized to individual requirements
- Fixed charges – repayment and interest charges are fixed for the duration of the agreement
- Repayment periods – repayments and interest charges are scheduled over an agreed period of time, usually between 3 months and 18 months
- Payment of funds – funds are paid direct into your practice
- No limits – the loan can be used for virtually any business purpose from Office Furniture to Relocation Costs or Private Medical Schemes; Refurbishment; IT Hardware/Software; Telecoms; Office Equipment; Furniture; Building Works; Tax Liability; Vehicles; Expansion; Relocation; Practice Acquisition; Partnership Buy In/Out; Practice Mergers; Recruitment; Fee Purchase; Partnership Equity Purchase; Professional indemnity insurance and more.
The PBI Micro Loan Promise
From our extensive experience, we believe that our clients’ business interests and requirements are best served by us acting as a partner, rather than simply a supplier of funds. Our policy is to listen to our clients’ long and short term business plans before recommending an appropriate financial solution. This pledge to engage carefully with clients’ business needs and aspirations is just the first step in what we call The PBI Micro Loan Promise.
The PBI Micro Loan Promise comprises a number of undertakings we give to every one of our clients. It can be described as follows:
- Listening and learning – we undertake to listen to our clients’ business objectives and learn how they wish to grow their business.
- A personal approach – no two clients’ plans or ideas are the same; we treat every practice’s needs individually.
- Total confidentiality – clients can be assured of our complete discretion.
- Minimal bureaucracy – paperwork and administration are kept to a minimum.
- No prepayment – to ensure continued smooth client cash flow, we never ask for prepayments or deposits.
- Fast response – we do our utmost to avoid delays or bottlenecks in order to effect solutions swiftly and effectively.
Ask about attorney micro loans today and receive your funding within days. Not only do we offer a micro loan we offer a variety of loans to meet all your cash flow needs and requirements.
Ask about attorney micro loans today and receive your funding within days. If that is not what you want consider our full range of financing options for attorneys, including the critical knowledge you need to establish and develop your firm. We work with attorneys all across the country, so we know what it takes to manage your business in the most efficient, cost-effective way.
(2): Get up to $200,000 for Partnership Buy-In in Capital Loan
As an attorney, you’re well aware that buying into a partnership is something you may do just once in your lifetime. That’s why you need to work with someone who can make it as easy as possible from start to finish.
We offer flexible repayment options and knowledgeable associates to help you with your decision. Resources available to you include:
- Buy-in financing for up to 10% ownership of the business
- Customized loan amounts that provide necessary capital financing for your firm
- Flexible payment structures to fit your law firm’s capital distribution schedule
- Interest only payment options for up to 13 months available
- Fixed rate terms to meet your specific needs with competitive rates
- The ultimate in flexibility and control, with principal reduction and early payoff options
- Borrow $25,000 to $200,000 at terms up to 10 years
(3): Purchase or refinance the building that’s right for you through a Commercial Real Estate Loan
When leasing space isn’t the best option, it may be time to consider buying or relocating to your own building.
We offer a complete suite of real estate loan products including first mortgages, refinancing and more. We’ll customize a financing solution that meets the specific needs of your firm. Our financing program include:
- Loans up to $5 million
- Conventional loans with simple applications and short approval times
- 6 months of no payments or up to 12-month interest-only options—make lower payments while you adjust to ownership
- Payment schedules up to 25 years to keep payments affordable
The ultimate in flexibility and control with principal reduction and early payoff options
(4): Improvements- Expansion and Relocation Loan: It’s a big decision—relax, we’re here to help you every step of the way
The professional and financial rewards of expanding or remodeling your practice can be well worth the effort—especially when you have our professional practice financing experts on your team.
We can help you locate reliable, reasonably priced sources for everything from equipment to software. We offer resources that may enable you to determine cost-effective methods for remodeling and expanding, and can discuss financing alternatives to help you achieve your dream of a more profitable practice—now and in the future.
- 100% financing for everything from architectural and design fees to renovations, construction, equipment and other project expenses—including tenant improvements
- Interest-only payments for 12 months or deferred payments for 6 months to lower payments after remodeling or expanding
- No payments during the draw period
- Longer repayment terms than anyone else in the industry—up to 10 years—to keep payments low and affordable
- Fixed rates to suit your practice needs
- Up to 12-month rate lock, through project build-out phase, to protect against potential rate changes
- The ultimate in flexibility and control with principal reduction and early payoff options
- A dedicated project manager resource to help get things done on time and within budget
(5): We make the Equipment Purchase Process quick and easy with an Equipment Loan
When your equipment breaks down or becomes obsolete, you may need to replace it quickly. We understand. That’s why in most equipment purchase situations no tax returns or financial statements are required. Even if you’re not in a hurry, you’ll appreciate the financial advice and assistance we can offer.
We’ll explain the tax benefits you can receive from depreciation and first-year write-offs—as well as the Section 179 tax implications—of qualifying equipment and software purchases. We’ll even help you decide between leasing and buying. We offer a wide variety of financial options and flexible terms that will make upgrading your equipment easier than you ever imagined.
- Quick credit decisions on loans up to $75,000 for equipment or consulting
- Preserve working capital with 3- or 6-month deferred payment options
- Quick and easy phone application process
- Comprehensive financing for everything from installation to training and equipment costs
- No application or closing costs—to save you money right from the start
- Simple interest payoffs and principal reductions that put you back in control
- Flexible payment structures with terms up to 7 years to meet your needs
- Up to $10,000 travel reimbursement for consulting
(6): Simplify your financial life with a Practice Debt Consolidation Loan
Now you can leverage your professional equity to upgrade or expand, fund future growth, consolidate bills into one low monthly payment or improve your cash flow by lowering your overhead. We’ll work with you to customize a plan that suits your income, debt level and plans for the future.
- Sensible solutions at competitive rates
- Financing up to 65% of your business revenue to help you consolidate debt and lower your monthly payments
- Repayment terms up to 10 years—to keep payments low and affordable
- The ultimate in flexibility and control with principal reduction and early payoff options
Call to see what we can do for you call us and one of our experienced managers will be delighted to assist. Please advise how we can help you succeed in your business. Our suite of lending solutions and panel of financial providers means we can tailor our loans to suit your individual needs, allowing you to overcome or prevent any cash flow difficulties. We offer a swift, confidential and personalized service, and our experience allows us to understand the issues affecting attorneys.
The Business Doctor
Profit Builders Inc.