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 why a law firm might need finance and the ways in which such finance might reasonably be obtained. It also considers how much debt is healthy and when it becomes excessive.
All businesses require finance and law firms are no exception. Finance is required so that the business can acquire the assets it needs to operate its trade. If you review the balance sheets of law firms you will see that the major assets that need to be financed are:
The main fixed assets are:
property—many smaller law firms buy their property but this is less common with larger firms, which are more likely to rent their office space
IT equipment—nearly all law firms appreciate the need to improve and upgrade their IT systems; while such equipment is sometimes leased it is also often purchased
Other fixed assets may also be purchased, such as cars, vans and other equipment.
The main current assets are
work in progress (WIP)—fee earners are paid to spend time on client files; as time is recorded this is collected as WIP until such time as it is billed
debtors—once a client has been billed the business no longer has WIP; it has a debtor instead
Law firms are
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