7 Tips to solidify your law firm finances

We're continuing our series on how to improve your business. Today we'll talk about 7 things you should do to solidify your financial status. The good news is that if you made it through 2009 then the odds are your business will survive. Now that the recession is starting to ease up, the objective should be to make sure your business gets as healthy as possible, as fast as possible. Here's some tips.

1. Cut costs and add to efficiency. Yes, I know you did that. Now keep doing it.Look at your current suppliers and see if you are getting the best deals possible in the marketplace. Examine your routine practices again and see if the are adding to your profitability or are they just one more step someone has to accomplish without really adding a profit to your bottom line. And take another look (maybe for the first time?) at off shore opportunities for specific and routine task accomplishments that can be done cheaper and maybe more efficiently.

2. Take advantage of ready cash chances. If you have an intake staff that screens your cases or does other preliminary "prep" work on a file, consider incentivizing the workload so your people get the new cases in faster and more efficiently. Look at where your most profitable work is and market that area of your practice more aggressively. For paying cases, don't just charge interest for late payment but offer a reduction for early payment of legal services. And use slow time as an opportunity to provide current clients with more timely updates on the status of their files.

3. Reframe your budget. You do have one, right? Well go over it again to refine your cash flow and bills-to-pay projections. You've got a bad year's worth of numbers now so you should have a better idea of what to expect for both income and expenses as the marketplace picks up. And if you are looking at your numbers monthly, then start looking biweekly. Use slow times as a chance to better understand and know your numbers for rebounding and continuing profitability.

4. Watch client credit. If you don't get paid in advance, then you are advancing credit to your clients in the form of your time expended. So, watch your credit closely. give your best service to those clients who pay the bill promptly and without dispute. They matter to your next paycheck more than any others do. And be careful what new clients you take on. Just as last year was no time to take on a heavy load of long-term contingency cases, this year is not yet the time to stop worrying about paying clients either.

5. Rethink your practice areas and fee structures. If you took on a new practice area last year to help your cash flow, now is the time to look at the numbers that resulted and decide if it worked or if you need to do something else. And look at your hourly rates in your different areas of practice. One of the best ways to increase your income is to simply make a slight increase in your hourly rates. Another way is to shift some of your conventionally overhead costs into client paying costs. Rethink what you can do to advance menu selling in your practice too.

6. Keep managing your money tightly. Now that your general account is a little healthier, don't splurge. This is not the time to loosen your grip. Use "just in time" buying practices for your supplies and external services from third parties. And don't let client bills get behind. Times are still tight for everybody so some clients will still prolong payment of their legal bills. When it happens to you, stop working. Don't throw good billable time after an uncollectable client.

7. Get rid of unprofitable assets, including people if necessary. Chances are you already have looked at this aspect during the last year. Well, keep looking. If your law practice is to survive and prosper, you have to make sure your people remain productive and work cost-effectively. The economy isn't great yet and it may be months (some say years) before it gets there again. This continues to be the time to let go of unproductive or unprofitable or inefficient hard and soft assets. If an area of law isn't in your "core" practice, then consider dumping it.

Things are a little better than they were 6 months ago and, for some, maybe even a year ago. But this is no time to forget the hard lessons learned in the last year. Now is the time to begin to profit from them.

Ron Burdge
Helping lawyers understand the business of law, since 1978.