The Most Valuable Piece of Advice When Starting a New Law Firm
I recently had the honor of being interviewed by Bob Ambrogi for his Law Technology Now podcast about my adventures starting Rocket Matter and how, out of all possible things in the universe, I ended up running a legal technology company.
One of Bob’s many excellent questions had to do with what advice I would give to new startup companies. My answer about starting a new company applies to any company, whether in the tech field or a law firm: It’s cash, cash, cash.
Money is oxygen for your business. No matter how much you want to do the right thing by your clients, you cannot help them if you cannot breathe. Like the airplane safety video, you have to put your oxygen mask on first before you help anyone else.
Specifically, keep the following in mind as you start up or even think about starting up:
- You must keep your spending low when you’re first starting out. You need to understand your cash flow, or the amount of money you have coming in and out of the bank every month.
- Look at your cash balance every day and know what payments you have coming up.
- Push out your payments as far as possible—without penalty of course. If you can pay in 30 days, pay in 30 days. If you can pay in 60, pay in 60.
- Likewise, collect as much cash as early as possible. Do this by making sure you invoice early and often.
- Consider Alternative Fee Arrangements, such as automated payment plans or recurring billing. This lessens the operational burden of collections and increases the likelihood of getting paid.
- Sign up for credit card and eCheck processing. A lot of clients want to earn points on their rewards cards, and it’s an easy way for you to increase collections. Find out more here with our useful e-book.
- Even though you might have to pay more, it often make sense to pay cash out over time instead of up front. For instance, expensive furniture and computer purchases can be financed monthly or leased, if not through a bank, then through companies like Direct Capital.
I realize that my last point about financing might be controversial. There are some people that advocate not having any financing or debt at all. Dave Ramsey, a financial guru, is one of those people.
But I believe it’s important to hold on to your cash as best as you can. You don’t want to run out of air. It’s important to note that a non-debt approach is not for everyone. If Phil Knight followed Dave’s advice, there would be no Nike. The same can be said of many businesses.
For further reading about cash management strategies, take a look at Scaling Up by Verne Harnish.