Best Practice: Improving cash flow

Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a 12 attorney firm located in Chicago. We are struggling with cash flow and having problems covering payroll and meeting our draws. Do you have any suggestions? A. Small firms that have weathered the storm and faired the best during this recession were those that:

1. Were focused
2. Had a sense of where they were & where they were heading
3. Had a vision and a strategy
4. Had business and financial plans
5. Had goals and measured attainment
6. Fostered accountability from self and others
7. Were proactive
8. Worked the books and aggressively managed the RULES

Here are a few cash flow tips: 1. Establish an accounts receivable management system and aggressively call and follow-up on overdue accounts. (45 day point). 2. Consider outsourcing accounts receivable management. 3. Establish sound client acceptance and intake procedures. Use New Client Memo forms. 4. Use written fee agreements and engagement letters and have them signed by the client. 5. Do your billing right

• Establish billing cycles for all clients
• Cut-off early and have bills in client’s hands by 28th of the month
• Force compliance of getting our bills monthly or sooner
• Make your bills understandable and positive
• Print your payment terms on your invoices
• Send Reminder statements on the 15th of the following month

6. Require more retainers and pre-payments. 7. Have client pay client advances up-front or bill immediately upon expenditure. 8. Accept credit cards, tell clients you take them, and encourage use. 9. If you are well organized you may be dropping 10% of your time and not getting it recorded – if you have poor time management and timekeeping habits you could be dropping 25% Develop sound timekeeping habits – enter your time daily directly into your own computer – account for a full day – account for all time – billable and non-billable as well as personal time. 10. Manage your cash flow

• Billing
• AR follow-up
• Deposits
• Payables
• Electronic billing – E-bills
• Lock Boxes

John W. Olmstead, MBA, Ph.D, CMC,  is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.