Law Firms and Money

Would you believe that some law firms still manage their cashflow by ‘checking their bank statements’?

It’s an extreme version, but it exemplifies what we regularly encounter. The fear of change inherent in the lawyer’s mentality (I know because I was one for a long time!) can lead to a chain of issues.

“Always done things this way.”

“Changing technology or process will be too difficult.”

When you look at such attitudes in detail, this can mean that law firms don’t optimise their operations, both in relation to client work and in relation to the crucial accounts (client and office) part of their firm.

Every element of successful operation can be impacted by this- not least, the simple day to day viability of the firm from a financial performance perspective.

Is the quote for the client based on good assessment of what it will take to do the job profitably?

Is the handling and recording of client money being done efficiently, accurately and compliantly?

Is billing happening at all, or promptly?

Is credit control in place to ensure that those bills are paid?

Even when all those things are done well- is the available data being used to manage the business. Real time accurate data is invaluable, as it provides the opportunity to create meaningful cashflow calculations on a daily, weekly or monthly basis. It means the firm can understand (as per the regulatory requirement by the way!) whether they are in fact operating a viable business.

How can a firm make decisions to invest in people or tech if they don’t have accurate data enabling them to assess whether they have the funds to make those moves?

If we look at the overall topic of ‘money’ for lawyers, it has so many connotations. It leads to regulatory thinking where client money is concerned. It comes into recruitment- are you paying the right salaries to attract and retain talent?

In the end though, the general principle that “money is important to lawyers” is a trite and unhelpful statement. Far better perhaps to pose a question to the law firms- do you understand the state of your firm’s finances? Do you understand whether you are compliant and risk avoidant in your handling of client and firm money?

If in doubt on either point, it’s crucial that an investment of time initially is made to look into it. Before it’s too late.