Cash flow management is one of the numerous serious problems faced by small firm attorneys and research over the years has shown that poor cash flow management by small businesses a huge culprit in terms of small business failures.
You often time find many profitable small law firms going burst within few years of being set up simply because the owner lawyers fail to follow simple financial management best practices that is hinged on sound and fluid cash flow management.
This article is a compilation of small business cash management best practices. The tips given in this article can be applied in all businesses. So, if you are reading this article and you are not a lawyer, don’t stop reading as all the tips here applies to small business of all kinds.
15 cash flow management tips that solo lawyers can adopt
This section of this post provides brief overview of simple techniques that can safely be implemented by any attorney that decides to go solo as far as cash management is concerned.
- Quick invoicing: if you don’t ask, you don’t get. Debtors usually tend to relax except you send them invoice. Apart from the inherent human inertia, customers will not pay for your services if you do not invoice them because they need to have records of their payment. I cannot stress this point enough; a word they say is enough for the wise.
- Effective Cash management: another way of ensuring that a company remains liquid is by effectively managing its cash and cash equivalent items. The cash management technique does not need to be sophisticated, simple acts like setting limits and ceilings for the amount of cash that should in the coffers of the current account at any point in time should do.
- Establishing credit control: this process of credit control starts with having suitable policy in place. Every business, no matter what line of business they are into should have a well spelt out credit control policy.
- Keeping operating expenses low: this is a classic no brainer cash flow management tips that everyone should always follow. You cannot last in business if operating expenses are not kept low enough to allow a firm to have positive cash flow.
- Review payment terms and condition: your payment terms and conditions is a major factor that determines how quickly your customers pay for the services that you render. Just as you continually strive to achieve a healthy cash flow in your business; your customers also want to make sure that they get the best out of their cash. Use a bait to get your customers to pay promptly if necessary.
- Proper payable management: businesses are always encouraged to take advantage of any opportunity to delay paying off its debt in as much as the intrusive value that would be gained from such practice will outweigh the costs and other implications of delaying payables.
- Proper receivable management: receivable management is a huge area in the field of working capital management that is heavily relied on as far as cash flow management is concerned. At the very least, businesses should actively seek for ways of getting the money in quickly from the customers. Reasonable cash discount can be employed in this regard.
- Avoid overtrading: overtrading is the act of engaging in financial activities than you can possibly handle. A popular example of overtrading is when a business uses a short term loan to finance a major long term business.
- Keep good and up to date books of account: no matter how simple it might be, a firm is strongly encouraged to maintain clear and up to date books of account. This will provide unbiased state of a company’s finance in a snap.
- Don’t rely too much on credit: in as much as trade credit is an economic catalyst, care should be taken so that a company does not overly rely on it, especially the short term credit. A company that overly relies on short term credit will struggle if the supplier of the credit demands it in a short time.
- Have a simple cash flow statement and budget: your small business will have better insight into its activities if it has a simple cash flow statement and budget.
- Make your payment process easy: your customers that bought goods on credit from you will simply not bother to pay if they will have to go through a lot of hassle just to pay for the services you provide. Whatever payment method you want your customers to pay you from, make sure it is a simple one.
- Hire a small business accountant: there is no readily available substitute to the benefits you will get from having an accountant as your small business advisor. Your business will be better off when you have an accountant to provide you with trusted financial guidance, not just to help prepare the books.
- Have simple cash flow management software: the market place is full of inexpensive small business accounting software that has the capability of managing your small law firm cash flows and budgets.
- Have an online bank account that is linked to your cash flow software: in this digital age and time, it will financial suicidal not to have an integrated small business financial system in place. Many accounting software has the facility of linking to your online banking system. This will help ensure that you monitor your cash level on almost real time basis.
I can almost guarantee that the cash flow of your small law firm will improve greatly if you can manage to follow at least 7 of the 15 tips discussed in this article.
In whatever you do as a small legal practitioner, remember that cash flow management is key to your long term business success. Also, do not forget that managing and improving the cash flow of your small law firm is a process and not an event.