When it comes to managing finances strategically, contingent-fee law firms face a diverse set of challenges compared to firms that use hourly or flat-rate billing. Personal injury firms, particularly those that specialize in complex, lengthy cases, need to take special care with their cash flow management, expense management and long-term financial planning.
For example:
- Cash flow management: Contingent-fee law firms, especially those that specialize in complex, lengthy case types – such as med mal – often need to keep their cash reserves on the higher end of the recommended spectrum (we suggest 10-30% annual revenue as a rule of thumb). Using historical data about average case value and average case length, together with real-time updates, it’s possible to keep cash trending positive.
- Expense management: While contingent-fee professionals don’t need to track their hourly work, they do need to be meticulous about tracking pre-paid case expenses, or they risk leaking profit.
- Capacity of professional staff: Are your attorneys and paralegals staff working at capacity or do they need more matters to handle? Could you streamline your workflow and increase firm productivity by better leveraging your junior staff? Do you have enough staff to support growth plans or do you need to hire? Tracking production metrics will allow you to answer those questions with data.
- Long-term financial planning: Budgeting and forecasting will be key to a stable path to growth for a contingent fee firm. An accurate forecast will require keeping a close watch on your pipeline of matters, from the time a prospect makes an inquiry to the signing of engagements.
At its core, these issues are all addressed by our philosophy: Profit-Focused Accounting. A system we created – and have used with clients for over 20 years – it’s designed to help firms accomplish their financial goals by breaking down revenue into financial and non-financial drivers: elements of the business that are controllable.
Once you know your drivers, instead of chasing an abstract revenue number, you work towards doing the things that add up to your goal: We call this pulling “levers.”
If you want to know how to take a profit-focused approach to your finances, in a contingent-fee environment, sign up for our monthly legal newsletter and be the first to know when our free booklet, Personal Injury Law Firms: KPIs to Help Your Firm Flourish, is available.
You can also check out our virtual CFO services for law firms or schedule a consultation below.
