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Cash flow and bank financing
Produced in partnership with Robert Mowbray of Taylor Mowbray LLP
Practice notesCash flow and bank financing
Produced in partnership with Robert Mowbray of Taylor Mowbray LLP
Practice notesThis 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 rationale for cash flow forecasting
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, when expanding rapidly or when there is a sudden but significant drop in fee income.
If cash flow forecasts are prepared and updated regularly the business should be able to identify in advance the times when:
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it will have surplus funds, and
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if additional external finance may be needed
If this can be planned for, there is more chance of finding additional
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