Financial management is a fundamental element in the operations of any business. A firm that has a sound financial management system can last longer even during hard economic times. The organization grows bigger due to the increase in revenues. In the legal field, some law firms are embroiled in financial difficulties. This results in the law firms being shut down or sold to other financially healthy companies. In this article, I will look at eight ways to improve the financing of your practice.
1. Adoption of Billing Software
Advancement in innovation and technology has resulted in the creation of software capable of being utilized for financial purposes. I would recommend the use of legal billing software by law firms. This software assists law firms in reducing loss by providing services such as time tracking and invoicing. The billing software should be programmed to create a database whereby financial records are stored for future use. This allows the firm to have sound financial records in case a financial audit is required.
2. Account Management
A law firm that considers itself serious should employ an accounting officer. The officer is supposed to record, calculate, balance, and keep financial records. In this manner, I am confident that funds will not be lost easily. A sound financial officer will provide checks and balances by providing sound monetary advice. He or she should be mandated with the task of operating the law firm billing software.
Law firms should set realistic goals to maintain solvency. For instance, I would recommend partners in a legal entity to create five-year plans instead of year-to-year planning. The plans should be based on the available resources the law firm has. In this manner, the law firm will save more money. Yearly planning requires significant monetary resource. This is due to the hiring of planning officers who charge high rates. A long-term strategic plan only needs a review to gauge the level of achievements made.
4. Standard Legal Fees
In order to remain in business, a lawyer requires understanding his numbers. The fees charged to customers should be reasonable at all times. Through this way, the organization will remain attractive to clients. Exorbitant and fraudulent fees should be avoided at all costs. Such fees keep customers away. Secondly, undercutting should not be entertained at all costs. Undercutting denies the law firm the required legal fees. In avoidance of this problem, rates should be programmed in the law firm billing software.
Salaries for employees take a big chunk of resources from any organization. Managing partners in law firms should be careful enough to hire the needed employees. I would recommend the hiring of associates depending on the workload in the firm. The adoption of law firm billing software would not be helpful if excess employees are hired. Secondly, employees should be hired on merit and qualification. In this way, the best brains are recruited resulting in excellent company results. This in turn will lure more clients, thereby increasing resources.
6. Reduce Debts
Borrowing funds should be regulated at all times. Excessive borrowing results in unnecessary debts. I would recommend the borrowing for investment approach. In this manner, all borrowed resources should be for long-term projects only. The aim of these projects should be profit making or purchase of assets. Some law firms borrow to finance payroll, which is not right. In case a debt arises, it should be paid back as soon as possible. This reduces amounts paid as interests.
7. Do Not Represent Clients who Fail to Pay
A good business must create mechanisms to ensure that all customers pay for services rendered. In legal practice, a lawyer must make sure that all clients pay their fees in time. A client who does not pay should not be entertained in the firm. It is better to work on other matters rather than dealing with non-paying clients. I would recommend a standard fee for clients before any form of representation. Most clients work with perception. When they find serious financial regulations, they tend to abide by it.
8. Division of Labor
Law firms have a lot of work, which requires proper planning. Law firms should emulate the use of departments as found in the New York City Law Department. Legal and support divisions should be started to streamline operations and promote professionalism. The departments should be independent of each other to avoid interference. For instance, the finance department should have exclusive rights to operate the legal billing software. In this manner, the department will be accountable for any mishandling of the software.