Financial risk & stability

This sub-topic contains information and guidance to help a law firm to:

•
monitor financial risk and stability
•
understand cash flow and bank financing
•
consider different options for finance

Monitoring your financial stability—looking out for the warning signs

The main reason why law firms ultimately fail is because they run out of money, the bank refuses to provide further finance and no alternative finance cannot be raised quickly. It is usually large payments that bring the issue to a head, eg the payment of rent, VAT and income tax or the professional indemnity premium.

Law firms vary in their performance but most are poor in turning time spent on client matters into cash. It typically takes 120 days from doing the work to being paid (this is called lock-up) but firms are expected to pay rent and insurance in advance and the staff at the end of every month. It is not surprising that firms might run out of money quickly.

What should you look out for to make sure you remain viable?

There are many different things that could happen that might result in

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