Cash Flow Runs the Law Firm

Cash flow is the lubricant that enables all businesses to function. When you grow your revenue, or when you take too much money out of the organization, you will have a cash flow challenge. Only a supermarket or amazon-type organization can function with losses — they get great long term payment terms from their suppliers but receive cash immediately on making a sale.  

A law firm is not like this.  And in the case of many law firms, the lawyers get accustomed to larger-than-life styles of living, are unwilling to fund the organization out of a sense of entitlement, and are really only silos of sole practitioners under an umbrella. They are not organization people. They think, and oftentimes correctly, that they can jump ship and continue their flagrant disregard of the firm.

Lowering the lawyers’ compensation to appropriate levels in accordance with the revenue and expenses of the firm, and keeping debt only for long-term purchases (not for lawyers’ draws) is the only way to protect the cash flow and keep the law firm vibrant and afloat.


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