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Enhance Law Firm Cash Flow: 7 Best Practices to Follow
Running a law firm is not an easy task and if you are successfully running your law firm, then you are probably handling your cash wisely. Cash flow management is an essential aspect of every business industry. It is apparent that you will never want to run a law firm that works awesome for a few years and then all of a sudden run out of cash. This happens because of poor money management and can happen to any business.
Not knowing how to manage your money can be a threat to your law firm especially if your law firm is successful or you are new to the business. This is one reason why the profession of law firm accounting is flourishing so fast.
Running a successful law firm requires efficient and accurate handling of financial transactions like the handling of payment received from clients and dealing with the payroll of your lawyers, etc.
Administering your law firm simultaneously and managing your finances can become a challenging task if you are new or are not familiar with legal accounting. You can always take help of accounting firms that provide legal accounting services to law firms or hire an in-house accountant.
Simple tips to manage your cash flow smoothly
1. Stress-free payment process-
Make your payment process easy and less complicated. Handling your payment can be a tricky process if your payment methods are complicated. Make your payment methods customer-friendly and easy-to-use so that whenever your customer decides to make a payment, he/she can do it happily and effortlessly.
In this way, you can gain two main benefits: customer satisfaction and steady cash flow.
2. Evaluate current cash flow-
Maintaining a positive cash flow requires a lot of preparation. It all starts with preparing a cash flow projection. You can start with rolling quarterly cash flow projections that will help you in pinpointing the slow period during that quarter.
Maintaining an accurate record of your transactions will help your firm in projecting your cash flow efficiently. Firms that are either young or still growing and do not have an accounting staff, can opt for outsourced accounting services.
3. Setting your financial goals-
At the beginning of each year, setting financial goals will ensure a smooth sail throughout the year. It will make sure that you have adequate budgets for buying things for your office, for paying your bills and employees.
It also stops you from making any useless spending that can hamper your growth. Design a financial plan according to your needs and commit to it.
4. Hire a professional-
Seeking the help of a professional accountant or a legal accounting firm can assist you better to maintain positive cash flow in your law firm.
Unlike other businesses, legal accounting is quite different. Accountant of your domain hold years of experience in delivering quality services with good results. They can help you with the collection of receivables by taking proper follow-ups with your clients and giving them exciting discount offers that will descend your bad debts. More so, an accountant can also help you to pay your bills timely so that your liabilities are less as compared to assets.
By keeping a proper track of incoming and outgoing money, accountants generate useful financial reports that further assist you to analyze your financial position in the market and make better decisions.
5. Do cash flow forecast regularly-
With cash flow forecasts, you can sidestep future challenges. How? Well, when you forecast cash flow for your law firm, routinely you can plan better for any loopholes that you may bump into like changing tax compliance regulations and other crucial bill obligations in order to stay ahead of these before their deadlines arrive.
In unfortunate events, you may trap yourself in liquidity crises when unexpected changes occur to forecast revenues. However, a better way to mitigate the impact of unexpected cash flow scarcities is by performing a stress test of your cash flow based on estimation and understanding the various implications.
6. Use technology to manage cash flow-
Evolving technology can make your cash flow management process much more comfortable and positive. Moreover, according to researchers, cloud-based accounting tools are the biggest time-saver for law firms, allowing them to focus on what is important, work more effectively, and keeping a better track of business cash flow.
Tools like Xero, Sage, QuickBooks, Cash Analytics, etc., are ruling the technology market today. Choosing the right software can be a hassle for you as there countless options available in the market.
However, a simple formula to pick the right software is to evaluate your law firm’s requirement and search for the same in the software whether or not it can meet your needs.
7. Deal with invoices wisely-
You should not be eager to pay your bills and invoices as they arrive. In fact, you should be paying your invoices on the due date not before and not after it. Shelling out money on invoices as they come will empty your pocket from much-needed cash.
However, this does not mean that you should not pay your dues if you get early discount payments on invoices you should go for it. Nevertheless, the golden rule is keeping money in your pocket for as long as possible.
If you are looking to grow your law firm significantly, then getting the right financing, keeping track of your finances and saving cash plays a significant role.
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