Small business owners including law firms, accounting firms, dentists and title agencies know ‘Cash is King’. No matter how well your business is doing and how fast it is growing without cash to pay the bill puts a quick end to many business ventures. It is not unheard of for a successful law firms to have a large settlement coming that will pay all the bills, that $1 million settlement does little good if revenue from the settlement is weeks or months away with your rent is due next week. What are you to do in the meantime?
Planning and tracking your cash flow is critical.
The Hartford article ‘7 Ways to Keep the Cash Flowing to Fuel Your Small Business’s Growth’ on cash flow is an excellent place to start to make sure that you have enough cash on hand to pay your bills when due. As with many other things planning is key. Here is an overview of the steps you need to take:
1. Plan Ahead—Need to know when the expenses are due and when the cash is coming in. Many accounting software packages have some cash flow protection tools that can help.
2. Do the Math—Understand what your costs are and when your clients will really be paying.
3. Monitor Your Cash Flow Every Day—Not very glamorous, but you need to know what your receivables and payables are daily and how much cash you currently have on hand.
4. Keep Cash in Reserve—Surprises do happen. Generally your expenses are steady, but your revenue depending on the type of clientele and your practice can be very uneven. Even the recommended 3 to 6 months reserves may not be enough for a plaintiff law firm that works on contingency cases that settle very sporadically.
5. Improve Receivables—Remember that keeping current with client billings and collections starts with the initial customer engagement. Getting adequate retainers, timely billings and monthly invoicing go a long way to improving cash flow.
6. Manage Payables—When cash is tight, it is not a time to taking on any additional expenditures.
7. Benchmark Your Business—Look to best practices in your industry to help you improve your cash flow.