Cash Flow, Insights

Summer is one of those times of year when lawyers find themselves with cash flow issues. They want to take time off and spend money to go on vacation or do fun activities. As August approaches, there’s also tuition due for the kids. But bills still need to be paid and some business expenses may also be higher in the summer such as air conditioning and hiring temps as others go on vacation.

Cash flow is particularly a problem for plaintiff lawyers because of the long wait times before getting paid and large outlays that must be made. For example, in class action cases, lawyers often lay out large sums in disbursements. Then even after the case settles or has gotten preliminary approval to settle, they may have to wait a year or 18 months for final approval. Similarly, in cases involving infants and death, attorneys also have to wait for court approval. Even in regular personal injury cases, lawyers have to pay out for disbursements and once they settle a case, it could still be a month before they get the check. Meanwhile payroll is due Friday.

The reality is that cash flow for personal injury firms is “lumpy” meaning sometimes there can be no cash coming in and then suddenly there is a large influx because several cases settle or pay off. That makes normal budgeting a big challenge. There are lots of resources available to business owners to help them develop a realistic budget and set aside funds for the “unexpected.” In particular, bar associations can be a great source of information. It’s important for every business to have a budget, but particularly for personal injury lawyers, a separate cash flow budget is a necessity. However, there are still likely to be times when the revenue isn’t there to cover expenses.

Of course, it’s not just during the summer when this happens. Tax time and year end also can be challenging as expenses increase and in some cases, funds are further delayed (for example, when insurance companies close their books mid-Dec and don’t pay until mid-January.) That’s when legal funding companies can offer a solution by providing money to run your practice. Companies buy a portion of your legal fee turning your settled cases into a valuable asset.

In a future post we’ll provide tips on choosing a funding company.

In the meantime, if you need funding to run your practice, learn more about how we can help.

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