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This article is one in a five part series. Here are links to all the articles in this series:
Law Firm Marketing Resolution Part 1: Don’t Feel Guilty
Law Firm Marketing Resolution Part 2: Run Your Law Firm Like a Business
Law Firm Marketing Resolution Part 3: Make Marketing a Priority
Law Firm Marketing Resolution Part 4: Pick a Niche and Get Rich
Law Firm Marketing Resolution Part 5: Measure, Manage, Multiply
Law Firm Marketing Resolution: Wrap-up
Law Firm Marketing Resolution 2: Run Your Law Firm Like a Business
Your solo law firm is a business.
It has revenue, profit and cash flow.
You need to focus on these three things in order for them to improve.
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Revenue is also known as “sales”. This is a dirty word among the groups of attorneys I have come across. The simple fact of the matter is that nothing happens until someone sells something. You must sell yourself and your expertise to several people each month in order to secure them as clients. The more people who know you, like you and trust you, the more revenue you will have. Getting people to know you, like you and trust you means that you must become proficient at the art of persuasion. That’s selling. Selling leads to revenue.
When your client puts his trust in you, he must demonstrate this trust by giving you money. Sometimes this comes in the form of a retainer (advance payment). Sometimes this is in the form of paying your expenses at the end of the month (while you wait to get paid on a contingency basis). Sometimes you send a bill for the amount of hours you have spent working on his matter. The best way to run your law firm is to get as much cash as possible in advance.
The amount of cash you receive minus the amount of cash you pay out for expenses is your cash flow. If you have more cash coming in than going out, you have positive cash flow. If you have more cash going out than coming in, you have negative cash flow. Businesses with negative cash flow usually fail. This must be tracked every month.
There is a difference between revenue and cash flow. You count your cash when you receive it. If you don’t have it in your hand, you can’t spend it (or pay yourself). Revenue however can be counted when the work is done. So if you do $10,000 worth of work for a client in March, you can have $10,000 in revenue but if he pays you in April, it affects your cash flow in April.
That brings us to profit.
Your revenue minus your expenses is your profit. And this has nothing to do with cash.
In the example above, if expenses in March were $3,000 then you have $7,000 in profit for the month of March.
Profit is important for many reasons the most important of which is determining the worth of the business but unless you collect the cash it doesn’t mean anything.
These are the three basic elements of running a business.
Acquire clients and provide them with value by doing the work — revenue.
Collect the money and make sure you collect more than you spend each month — cash flow.
Bring in more than enough work to cover your expenses — profit.
Obsess over these three things and you will be running your law firm like a business.