The following Practice Management guidance note Produced in partnership with Robert Mowbray of Taylor Mowbray LLP provides comprehensive and up to date legal information covering:
This Practice Note provides an understanding of what might cause a law firm to fail and what the bank will be looking for if it is to continue to support the business with additional finance.
The short-term risk in all law firms is that they could run out of money, potentially causing the business to collapse. Law firms have poor cash flow from clients but pay out expenses fairly quickly so they are particularly at risk if cash flow is not managed properly and the business has insufficient capital. The most likely times for a law firm to fail are when starting out and when expanding rapidly.
If cash flow forecasts are prepared and updated regularly the business should be able to identify in advance the times when:
it will have surplus funds, and
external finance may be needed
If this can be planned for, there is more chance of finding additional finance than if the business only goes to the bank when it is on the brink of a crisis.
There are a great number of lawyers who do not really understand the difference between making a profit and having the cash. Given that lawyers tend to obsess on maximising profits, it is all too easy for them to forget cash flow.
**excludes LexisPSL Practice Compliance, Practice Management and Risk and Compliance. To discuss trialling these LexisPSL services please email customer service via our online form. Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.
To view the latest version of this document and thousands of others like it, sign-in to LexisPSL or register for a free trial.
Existing user? Sign-in
Take a free trial
Take a free trial
0330 161 1234