The purpose of securing financing for your firm is to enhance the performance of your law practice—whether to improve its financial stability, increase business opportunities or accelerate growth.
Still, as your practice evolves, so too may your firm’s financial needs. You may want to ramp up advertising, rebrand, introduce more services, hire new staff, improve technology or change up operations, all in order to take your firm to the next level.
How do you adapt your financing to meet the new challenges and prospects facing your firm?
Follow these 4 simple steps.
- Define Your Goal
What do you really want to achieve?
Your first reaction to acclimating to your firm’s shifting needs might be to go out and get as much financing as you can, as quickly as possible.
However, just as not having enough capital can be fatal to your firm, so can having too much—especially if the cost of capital is high, which can occur when you opt for fast cash advances or when you must give away too much equity in the cases for a co-counsel relationship that provides the financing you desperately need.
While a surplus of funds to deploy may sound good in the moment, poorly planned financing can leave you over-leveraged or overly diluted. This isn’t to say that there’s something wrong with expanding your firm rapidly through a quick capital infusion. In fact, that’s how many businesses scale profitably. But the best results come from proper planning.
Start by writing down the goal you want your firm to achieve. Research shows the more precise your goal is, the higher the likelihood that you can accomplish it. To help you set realistic, measurable goals that you can actually hit, we’ve put together a free goal-setting template.
- Specify Your Purpose
Why do you want to achieve this goal?
Beyond getting specific about what you’re aiming for, another way to develop an effective financing strategy is to define a clear, meaningful purpose for your goal. Knowing why you are pursuing a certain objective for your firm will not only help motivate and engage you and your team, it’ll keep you focused so you can determine how much financing you’ll actually need versus what you don’t.
Keep your purpose simple—but powerful—by limiting it to one sentence and adding an emotional component. For example, the purpose of many attorneys is to hire the best experts to present the most detailed and cogent arguments for the largest settlement possible. What’s yours?
How much capital will you require?
A goal may give you focus, and a great purpose lends inspiration, but it will not mean much without a bit of reality. Pursuing any new direction for your firm is going to cost something. This is why preparing a budget is key. It maps out a solid financial plan for your firm.
As a lawyer, the word “budget” makes me want to do pretty much anything else, like manually crank 100 pencils through a wall-mounted sharpener or perhaps move a pile of sand with tweezers. Budgeting, however, isn’t as boring as it sounds and is critical to ensuring you’ve got the proper amount of financing in place to reach your goal—now and in the future. Without a budget, you may end up spending well over what is reasonable on advertising, case costs, etc., or worse, taking on more debt than your firm can repay.
Budgeting doesn’t have to be difficult. If you have an accountant, bookkeeper, CPA or the like, they can prepare an initial draft for you. Otherwise, we’ve outlined how you can easily create a budget yourself in three steps.
- Reevaluate Your Financing
Is your current method of financing sufficient?
Once you have a budget in place, you’ll know if you have the capital necessary to reach your firm’s goal.
If you don’t, then speak to your current lender about refinancing. They may be willing to, among other things, extend your maturity date, permit interest-only payments over a period of time or maybe even reduce your rate or increase your funding.
High-quality lenders may even introduce you to other financing sources or their network of attorney-clients in order to propel your practice forward and continue to develop a positive relationship with you.
In the event your lender isn’t willing to help you out, it’s time to start looking elsewhere. Compare other financing solutions to what you have currently to see if making a change is worthwhile. Even if you do have adequate funding, you still may want to go through this process to reassess if what has worked well in the past for your practice is still viable for the future.
A law firm, like any business, is continually changing. Therefore, it follows that how you finance your firm may need to change too. With proper preparation and foresight you can adapt effortlessly. As Thomas Edison said, “Good fortune is what happens when opportunity meets with planning.” Most law firms can make good sense of such propitious foresight.