Practice Management

How many of us know lawyers or law firms that seem to generate lots of cash, but the lawyers or partners never have enough money?

We all know some lawyers in which this is true, and we have all been in this position at some time.  This is especially true with traditional law firms.  And, the reason is pretty simple.  These law firms or lawyers do not know the different, or appreciate the difference, between cash and profit.  In short, they mistake cash for profit and they are not the same animal.

Do not get me wrong.  You need both cash and profit.  Cash, for course, is the money that comes to the lawyer or firm while profit is the money that is left over after ALL expenses are paid.  The key is to find the equilibrium between overhead and cash flow.  If not enough money is coming in you can never make a profit.  However, if you allow your overhead to get out of control you will never have enough cash flow to allow yourself to prosper in the practice of law.

Law firms and lawyers try to run their practices by utilizing an income/profit or loss statement.  But, these do not show the cash controls in place.  Move home.  Get rid of your traditional telephone service.  Cut down on paper and print.  Cut your legal research costs.  Collaborate instead of hiring staff.  Stop commuting.  Cut back on using snail mail.  Each one of these things helps turn your cash to profit -- money that goes straight into your pocket.  What we call down here in Texas "folding money".

The other thing that is not well understood is that a law firm can grow and show a profit, but the lawyers involved will always feel like they are short on money if the timing of the cash flow is not correct.  It is important that you work constantly at accessing your cases and working to get money in as quickly as possible.

Especially if you are going out on your own, you had better get your overhead under control from the beginning, and work on bring money in quickly, so that you can feel comfortable in your practice.