Law Firm Accounting and Financing: Managing Your Firm’s Growing Need
In this blog, we discuss the importance of building out the areas of law firm accounting and financing as your firm grows in case volume and operations.
Managing Prosperity and Growing Pains
Contingency fee law firms are complex businesses, and yet lawyers receive very little training on how to successfully run their companies from an accounting and finance perspective. When you start out as a one-person firm, you might be fine to handle things yourself, or even rely on a basic business accountant. But in the long run, as your firm grows and begins to prosper, you will discover the need for a professional finance employee to take on the complex task of operating your accounting functions.
It’s no wonder that the law firms best prepared to manage financial uncertainties and maintain the health of their businesses are those including accounting or finance departments. These individuals and teams have tremendous expertise in everything from managing cash flow—in times of plenty and in times of scarcity—to understanding the flow of receivables and expenditures.
Many firms start (and some continue) by hiring a non-employee accountant to manage these duties. But it’s a bold strategy to commit to and invest in your firm’s business by bringing on talent with a money management focus, as well as the experience to successfully guide your firm through smart accounting practices.
By continuously managing and updating case inventory and associated case values, to managing and measuring current and projected costs, and everything in between, a dedicated finance leader can advise on growth strategies, resource allocation, and the available options for financing to accomplish these goals.
Adding a Chief Financial Officer (CFO) to Scale Your Firm’s Growth
Growing law firms often discover that bringing in a Chief Financial Officer (CFO) is vital to the future growth and success of the firm. Law firm CFOs play an important role by interpreting financial data, identifying important trends for the law firm and making recommendations for strategic growth.
According to Tim McKey, CEO at Vista Consulting, CFOs are analysts that look at the key performance ratios and can communicate where the law firm is and what it needs to do. “Good CFOs, they simplify things. They’re able to put these numbers into context and to communicate to owners, these are the ratios that matter,” noted Tim McKey.
Seeing the Future of Your Case Costs
Another key reason to employ a finance lead—or even a full team—is that they can provide forecasts of present and future cash flow, as well as value your contingent case inventory — information critical to mitigating risk and boldly growing your contingency law firm business. This information is essential to securing financing to scale growth and ensuring longevity for your business. By anticipating and planning for future cash flow disruptions, you can be proactive about making sure your business can weather any shortfalls or unexpected slowdowns.
As a contingency fee law firm, is critical that you forecast the value and duration of your case inventory. Proper analysis and thoughtful decisions on case management are also vital to ensuring case profitability and for presenting a firm’s contingent case pipeline for securing bank or non-bank financing.
Forecasting Checklist for Success
For contingency fee law firms that deal with a variety of potential outcomes and unexpected durations for any case, the task of financial forecasting can seem altogether daunting, especially when managing the irregular cash flow associated with these cases – but it can be made simpler.
Find a simple forecasting checklist in our eBook, “5 Bold Strategies to Grow Your Contingency Fee Law Firm.”
Meet with Esquire Bank
Learn how your law firm can leverage case cost financing to free up capital that can be invested in marketing, technology, talent, operations, case acquisition, and growth. Schedule a no-obligation consultation with an Esquire Bank Business Development Officer today at a time convenient to your schedule.
Looking to Learn More About Law Firm Growth Strategies?
Download the eBook now, “5 Bold Strategies to Grow Your Contingency Fee Law Firm,” to get your hands on our top strategies for achieving exponential growth.
* The information provided on (or accessed through) this blog is provided for general informational purposes only and is not intended as, and should not be relied on for, law firm operations, tax, legal or accounting advice. Some of the information may not be applicable to or appropriate for all law firms. Please consult your own tax, legal and accounting advisors as appropriate. Results may vary by law firm.
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- Content Type: blog