One sure sign of a healthy business is strong cash flow. There should always be enough money available to cover employee salaries, pay for needed services, and cover overhead like rent and utilities. Using credit or obtaining a loan to cover these should be a last resort and may hurt your firm in the long term as interest payments inhibit growth.
A law degree does not necessarily prepare you to run a business, so it makes sense that a lot of law firms make use of an outsourced CPA or CFO team. If you do decide to go at it alone like many new companies, we have some advice.
10 simple things you can start doing today to ensure a healthy cash flow and grow your business
- Eliminate Surprises – No one likes to receive a bill for unknown charges. Starting today take the extra time to ensure potential clients understand what they will billed for, how long they have to pay invoices, and whether or not there are penalties for paying late
- Charge a Deposit – Start charging a deposit immediately. Often a good indicator of whether or not a client will have issues paying is their willingness to pay a deposit.
- Craft Good Invoices – Clarity is often overlooked when creating an invoice. Make sure all billable hours and items are easy to read and detailed enough to eliminate questions. Bundle administrative costs such as postage, copies, and similar items into your hourly rate to avoid having clients balk at the charges.
- Add Value – It is common sense that a client is more likely to pay for services which he considers a bargain. Increase your value by adding a line for all those things you do for customers that go uncharged. List those items and then write No Charge instead of a price.
- Screen Clients – If your gut tells you a client is likely to have issues paying, just follow your instinct. There are usually red flags signalling a client’s unwillingness or inability to pay.
- Make It Easy to Pay – Don’t create barriers to payment. Accept every form of payment out there. Accept credit cards via PayPal payments or through an app like Square. If you send out electronic invoices, place the link into the invoice and make it easy to pay.
- Improve Collections – Collect even before an invoice is late. On the due date, give the client a friendly call to remind them of the due date and ask if they want to pay over the phone with a credit card. Not that brave? Send them an email with a Pay Now link.
- Spend Consciously – Cash flow is affected by overspending as much as by unpaid invoices. With so much overhead there is always something to buy or pay for, but expenses should not be spontaneous. Take the next five minutes to list those things you always need, such as office supplies or the electric bill. Then plan these around expected payment dates.
- Stock Up – It is a good idea to take advantage of coupons or sales to stock up on those items you are certain to use and which are frequently needed. Things like printer ink, paper, legal folders, and stationary are unavoidable costs. Just get the year’s supply out of the way with one good check.
- Automate – Running a business is hard; no need to make it harder than it has to be. Most cloud-based invoicing software now have email integrations and past-due notices can usually be scheduled for the day they become overdue and for subsequent intervals.
Consistency is Key
Taking these easy steps today will help minimize cash flow issues. However, consistency is key. Resist the urge to postpone sending an invoice during a busy week. This is a prime example of the domino effect because clients pay more quickly when your services are fresh in their minds. This in turn creates more work as additional hours have to be spent collecting unpaid balances.
Increasing cash flow is good for your law firm because it is important to business growth. Want to learn more about how to grow your law firm? Fusion CPA has industry experience working with other law firms to fuel their success. Contact us today to learn more about how we can do the same for you.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided in this website is not all inclusive and such information should not be relied upon as being all inclusive.