Are you keeping in touch with your profitability?
For many attorneys, the answer is surprisingly No. Not only are they unsure of the profit their firm generates but they have no real idea of how the money in their firm is spent.
These attorneys tend to manage the firm out of their checkbook rather than through financial reports. It’s not unusual to find that they don’t have a CPA nor do they have monthly Profit & Loss Statements or Balance Sheets.
And this is a big mistake.
Building a successful law practice requires that you manage that firm by the numbers – that is, that you stay in touch with the financial side of your firm.
And to do that, you need a financial management system.
Now, a good financial management system isn’t just about the software – it’s about what you do with the information it generates.
For starters, you should have a chart of accounts and know not just where the money comes from, but where it goes as well.
The Academy provides its Members with a uniform chart of accounts that groups all the various expenses and revenue sources into the appropriate categories. This allows our Members to measure their numbers accurately and compare their performance against other Member firms.
Your system should generate those nifty little reports we mentioned earlier – Profit & Loss Statements, Balance Sheets and the like – and then all this information should be compared against your target numbers.
What target numbers, you ask?
Well, your daily number for one. Your daily number is the amount of money you need to make each day to reach your annual revenue goal. This number is calculated by dividing that revenue goal by the number of days you actually plan to work during the year.
Is your firm meeting or exceeding your daily number? You won’t know if you’re not managing your firm by the numbers.
The second number you need to calculate is your hourly number. This number represents what your time is actually worth and once you’ve calculated it, you’ll begin to see where some additional delegating might be needed.
After all, if you’re doing tasks that could be done by someone else at a lower hourly rate, you’re using your time unwisely. But the only way to know for sure, is to know exactly what your time is truly worth.
Now, while you’re calculating all these numbers and creating your financial management system, here’s another quick tip for taking control of your cash flow: build a relationship with a banker and obtain a line of credit.
Do it now, while you have money in the bank. Apply for a line of credit while you don’t need it.
At some point during the lifetime of your firm, you may actually need that line of credit. You may need to rely on that established relationship to help your firm get through a difficult financial period. But building that relationship takes time and it’s much more difficult to acquire a line of credit when you’re low on funds.
So instead, take the proactive approach and form those ties with your banker before you really need them.
Sanford M. Fisch
CEO & Co-Founder
American Academy of Estate Planning Attorneys, Inc.