Options for law firm finance
Produced in partnership with Robert Mowbray of Taylor Mowbray LLP

The following Practice Management practice note produced in partnership with Robert Mowbray of Taylor Mowbray LLP provides comprehensive and up to date legal information covering:

  • Options for law firm finance
  • Why do law firms need finance?
  • Fixed assets
  • Current assets
  • Where might law firm finance be obtained?
  • How much debt is it reasonable for a law firm to acquire?
  • Making sure the business will never run out of cash

Options for law firm finance

This Practice Note provides guidance on 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.

Why do law firms need finance?

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:

  1. fixed assets

  2. current assets

Fixed assets

The main fixed assets are:

  1. property—many smaller law firms buy their property but this is less common with larger firms who are more likely to rent their office space

  2. 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.

Current assets

The main current assets are

  1. 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

  2. debtors—once a client has been billed the business no longer has WIP, it has a debtor instead

Law firms are notoriously poor at turning time spent

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