Legal Billing Rule #8: Predicting Your Future Income
The following post is an excerpt from our free e-book, Ridiculously Remarkable Legal Billing. Better billing practices improve your law firm and your life. Here’s the eighth one from the book.
Getting your bills out regularly and on-time is the most important tool you have in predicting your future income.
Knowing how much money is going to come in the door (and how much is going out) during any particular time is a fundamental concern of any business. Your accountant might call this “understanding your cash flow.” If you don’t have a good handle on your cash flow, you’re asking for – at best – a lot of extra stress.
For most companies, the absence of a cash forecast would be virtually unthinkable. Curiously, for many law firms, it’s a common missing element. Sure, most lawyers have a good sense of what needs to be paid, but ask them about how much they’re forecasting to collect over the next two months, six months, and 12 months. Frequently, you’ll be met with a stare comprised of ½ confusion and ½ disbelief, as in “nobody could know that!”
For sure, there are elements of a lawyer’s cash forecast that are very difficult to accurately gauge. The most frequently cited example: Who knows when that new business will come in the door?
However, there are plenty of elements of your cash flow that can be, for the most part, largely predictable. And all those predictions, in turn, flow from the most important,
controllable piece: getting your bill out on-time.
Looking at your current client base and workflow and assigning reasonable estimates to when you think you’ll perform pending billable work (by mining things like your current task list, calendar, litigation scheduling orders, corporate filing deadlines, and so forth), you can get a decent sense, without much work, for how much you’ll be billing and at what time.
Getting those bills out on-time will start the clock for payment, and when those bills go out is something that ought be highly predictable.
Once you start doing a little cash forecasting, you’ll also find that it’s very helpful in setting realistic, achievable goals. Laying out billing forecasts has a way of forcing you into thinking about strategic things like deciding what you want your practice to look like one year from now, three years from now, five years from now, and so forth.
Legal Billing Rule #6: Delaying Billing Is Like Giving Away Free Money
Legal Billing Rule #7: Avoid Communication Breakdown