It's not only how much money you make. It's what you do with it that determines your financial condition.
—Sandra S. Simmons, author, Unleash Your Cashflow Mojo
Make no mistake: Your cash flow habits can make or break your law practice. I’m not just talking about how you spend your cash. I’m also talking about the time and effort you spend managing your money instead of actually practicing law. Cash flow management is so critical to your success that it’s the first of seven secrets I address in my book, The DNA of the Autonomous Attorney. Why is this issue so important? And more importantly, what can you do to improve your cash flow management to grow your firm?
Why Cash Flow Management Matters
As Sandra Simmons reminds us in the above quote, your wealth doesn’t stem simply from how much you make, but also from how you utilize what you have.
When you don’t have a clear grasp on where your money is being spent, or if is being well-spent, you could be leaking profits without realizing it. On the other hand, if you’re spending too much time watching your money rather than working for your clients, you’re losing valuable billable hours, and eventually, you won’t have any more money to watch! To strike a balance, you need a system in place to track income and expenses without draining your time and energy away from your practice of law.
Tips for improving your cash flow management
- Hire a bookkeeper. Perhaps you think you can’t afford to hire a bookkeeper; I say you can’t afford not to have one. Since your hourly rate as an attorney is much higher than that of a bookkeeper, for every hour you spend on bookkeeping, and not working with a client, that’s a net loss. And if your budget is really that tight, there are affordable online services like Bench.co or JustWorks.
- Diligently track your income and expenses. Don’t waste a lot of time on data entry, but do spend some time looking at your reports. Be aware of where your money is going. Always look for ways to increase the space between what you make and what you spend.
- Drill deep on expense categories. For example, don’t just have a single expense category for advertising: break it down by types of advertising (e.g., radio, Internet, print, etc.). Also, try to track how many new clients come from each campaign, so you can know your ROI–which outlets are the most cost-effective.
Your ultimate goal with effective cash flow management is to spend as little time as possible, learning as much as you can. Know where your money is coming from, and where it is going. Streamlining this approach can make a huge impact in your bottom line.