Linda Artesani explains why law firms, especially PI practices, swing between cash windfalls after settlements and tight months when expenses spike. She walks through four steps to stabilize it: audit your expenses, calculate your break-even number, build a cash cushion in a savings account, and hire an accountant to forecast payroll and guide you forward.
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Hi there, Linda Artesani, Artesani Accounting and The Proper Trust. This week's video is all about cash flow and really what happens in some law firms. Some law firms experience this kind of a cash flow roller coaster. Sometimes it's up, sometimes it's down. Cash flow roller coaster is a term I use to describe an unpredictable up and unpredictable down of cash flow. And we're kind of rolling into a— rolling into a time frame where the economy is a little bit unstable. Prices and wages are up, and we're seeing that sometimes the economy can start to slow down when we experience this. A great example of a cash flow roller coaster is a law firm that does personal injury or a PI firm. Those can experience times where they're flush with money. They just settled a big case that may have been going on for 2 or 3 years, and then they have all this money coming into the firm, money that they've earned. And then sometimes they're taking on cases or matters, and those cases can bottleneck where they've got a lot of cases out there that aren't ready to settle, but they've got a lot of money that they're expending on behalf of the client to pay for some of those expenses. So when that happens, they can experience a tightness of their cash flow. So cash flow typically is your lifeblood of your business. It is the money that's coming in. money that's going out and money that's being saved, or money that's being invested. So if you think of it in that respect, it's the essence of your business, and, and sometimes it can be a wild ride. If you're just starting out with your firm, you might experience that cash flow can be tight as you're starting to plan out. Mentioned last week, you need to know that number. How much money do you need just to run the firm and break even and not even make a profit? So sometimes this can be an incredible ride. Sometimes it can be a beautiful ride. Sometimes it can be a challenging ride. So how do we make it so that we examine your, your funds in your bank account and your expenditures and your money in, your money out? And how can we make this more of a smooth ride, especially if your firm experiences the ups and downs that are a little bit unpredictable? So cash flow can be a real challenge. And if cash flow gets stuck, it can be really challenging. So the good news is there's some things that we can do to take the sting out of cash flow problems. And the first step, the first step you need to do is you need to step back and really look at your business differently. Are you offering a service that people want? If not, you probably need to make a change. If you're finding that you're not selling as much, then you need to maybe shift or change. You wanna really analyze what services you sell and how, how they're, how profitable they are. So that's one of the things you really want to examine. And you can really, you can really fix cash flow problems with just a few simple steps. First, you want to make a list of all the expenses that you're paying for, all the subscriptions, overhead, rent, utilities, everything that's involved. And obviously with law firms, wages is one of the number one expenditures in a firm. If you're that bigger firm, that's probably your biggest expense. So make a list of all the necessary expenses. Don't you know, what can you maybe eliminate? Maybe that's not so critical, something you like, but something that you can maybe not live without. You want to really examine exactly what's there, and maybe some places you could cut off some of the fat in the business. And then you want to determine how much money you want to pay each month to run your firm, and then determine the savings that you might want to put away for a cash cushion. Because we're really recommending our clients start to consider packing away a little bit of money into a savings CD or something, just to kind of tuck it away. Money market, tuck it away for that rainy day, that rainy day fund. So cash flow is really about making sure your business is healthy and sustainable. So staying on top of cash flow can be challenging when you're in business, because you're really busy, really doing the law firm work. You're, you're doing the work that an attorney will do, but you have to stay on top of it. And that's why you really want to hire that accounting professional that will monitor it for you and track it. So you stay maybe Riding on that cash flow roller coaster, but you're strapped in. So you kind of visualize it that way, and we can help you monitor those things. So remember, cash flow is the difference between business success and business failure. I wanna say that again. Cash flow is the difference between success and failure. Cash flow is the difference between having a stable business and having a— and not having a stable company. Cash flow is the difference between having a business that can grow long term or being stuck in a rut. Cash flow can be the difference between your vendors getting paid on time, and cash flow is really the business's lifeline. So you don't wanna be throwing out that, you know, that flotation device just to stay above water. You wanna have it planned out. So knowing that sometimes cash flow can be one of those misunderstood aspects of running a business, if you hire somebody that can help you really monitor it and help you through it and guide you through it, Examine what you have, examine where you're going, and examine really how do we get there in a nice smooth way so that you're not rushing and trying to push over funds at the last minute to cover your payroll. Those are things you really wanna do and plan for. So you're not riding the cash flow roller coaster and up here in the highs and then down in the lows going, oh my goodness, how am I gonna make payroll? So I hope this is helpful. I hope that you get a chance to Maybe examine your records, and if you need help with that, of course, we're here to help you. We're just a contact form away. On that note, we hope you all have a wonderful, wonderful week. Bye-bye now.
