Professional Services Accounting ARTICLE -
Is Financial Danger Ahead For Your Firm?
Target Audience: Consulting Services, Law Firm Professionals, Lawyers, Law Firm Associates
Like the rest of the business world, the legal industry is feeling the pinch of the credit crunch and tight economy. Is your firm like others that are struggling with lagging profitability? To determine if serious financial trouble is ahead for your firm, assess its financial health. Look for key signs, such as:
- A significant decline in new business,
- Numerous increases to the line of credit, particularly at year end when cash
- collections should be at their highest,
- Noticeably more write-downs and write-offs,
- Aged-out receivables, and
- Changes in the marketplace, such as consolidation of clients.
By keeping a close watch on key information in your financial statements, you can spot threats early. For example, comparing current month and year-to-date results with those of previous years can help you identify a declining trend and act promptly.
Financial statements can also alert you when expenses are far exceeding revenue. In this instance, cutting “soft” costs, such as practice group retreats and out-of-state conferences, and forgoing investments in new services, markets or staff that might not garner a significant return are quick corrective actions.
Also, review major expenses, including salary costs, real estate and technology. To reduce salary costs, some firms are cutting staff or scaling back on law school recruiting. Others are centralizing locations and reducing office space and common areas, such as conference rooms, kitchens and law libraries, to offset real estate costs. Firms are also carefully scrutinizing how to spend their technology dollars to streamline and improve processes that contribute to cost savings.
However, if your expenses are under control but your financial statements show you’re having trouble growing the top line, focus on marketing and step up billing and collections efforts, such as reducing client turnover and focusing on collecting receivables. Other strategies to consider include increasing fees, divesting the firm of low-profit work and enhancing workflow efficiency.
Find out how our expertise in professional services accounting can add value to your business. Email us or call us at 1 (888) 875-9770.
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