Finance Corner:

    A Guide for Plaintiffs' Attorneys

    An Educational Blog Series  




    Financing Basics:

    Year-End Planning for Your Contingent-Fee Firm

    Posted by Kimberly Gomlak, MBA & Kelly Anthony, Esq. on 07, Dec 2021


    Year-end is almost upon us, which means it is time to take a detailed look at your law firm, its operations and your objectives for 2022. Having a strategy in place for the future is always important to the success of your firm, but never more so than now with so many changes that continue to take place in the legal industry and in society as a whole.

    To successfully navigate 2022 and work toward achieving your firm’s goals, start planning now. Here are four tips to jumpstart the process.

    1. Identify your firm’s current state of affairs

    Though some degree of normalcy occurred in 2021, the legal industry still grappled with the effects of the COVID-19 pandemic. Attorneys have had to adjust to interacting with juries via Zoom, while the pace of travel still lagged behind traditional standards and some firms continued working remotely or instituted a policy of only a partial return to the office.

    It’s important to assess where things stand, so that you can more clearly map out the direction you want the firm to take next. Are you still fully remote? Do you find your firm has too many or not enough staff? Have pandemic-related restrictions slowed the progress of your cases? Has your firm suffered financially due to circumstances beyond your control?

    Whatever the ultimate answer is, you must first clearly define your starting point before you can move on to create a plan for moving forward.

    2. Identify your goals for the coming year

    Looking ahead, pinpoint your law firm goals. Have you seen a decline in case acquisition and want to focus on growing the number of clients? Do you want to attain financial stability? Has the firm plateaued, and you want to focus on growth in the coming year?

    Identifying exactly what you’ll strive to achieve is key to actually meeting your goals. You should also share the goals across your organization, so that your partners and staff can all work toward a collective purpose. In addition, including everyone in laying out the vision for your firm in the upcoming year can help them feel invested in its success and foster a sense of accountability.

    3. Define the resources needed

    Regardless of the goal itself, budgeting is a critical step in planning, especially at year-end. If you haven’t started doing so diligently, tracking your firm’s revenue and expenses is a key component to budgeting. You first must ascertain your firm’s current financial status in order to plan for the future.

    Notably, your law firm, like many, may experience ebbs and flows in cash flow, due to the nature of contingent fee practice. Mapping out these cycles and pairing the data with a detailed view of your current case portfolio can better help you to recognize where and when you may experience deficiencies in cash flow. To smooth out these peaks and valleys, a credit line or other type of financing can act as a bridge between large cases settling or when trials become delayed. The fixed costs of operating your firm still exist while you are awaiting payment of attorney fees and must be properly budgeted to keep the firm running efficiently. Be sure to include your office lease or mortgage, payroll expense, insurance and utilities, as well as miscellaneous costs such as liability insurance, income taxes, accounting fees, taxes, annual bar dues and CLE fees.

    Enlisting a professional accountant or bookkeeper can be helpful during this process, if you do not have an in-house expert. Not only will you feel confident you have a clear picture of your firm and its standing, but this planning initiative will streamline the process should you find the need to increase your firm’s access to capital by partnering with a specialty lender. Having your financial statements clear and concise—and readily available—will benefit you greatly in the long run.

    As you construct your firm’s 2022 budget, be sure to tie your anticipated spending back to the goals you set forth and specify how much capital you will need for each initiative throughout the upcoming year. It is also wise to build in a cushion—or a reserve—should the legal or economic climate fluctuate.

    4. Assess your ability to act on new opportunities

    Now that you have determined the financial health of your firm, you should assess whether or not you have adequate capital to embark on new ventures and take the steps necessary to meet your goals. Securing financing before you find your firm facing cash flow challenges is imperative to avoiding being caught short and having good opportunities pass you by.

    Many financing options exist in the marketplace today and careful research should be conducted to determine what type of lender will best suit your firm. Selecting a lender with thorough knowledge of the nuances of a plaintiffs’ practice can substantially benefit your firm because they are more likely to understand the nature of a contingent fee practice and, unlike most banks, can provide financing based upon your anticipated attorneys’ fees. In addition, a lender knowledgeable about contingency practice tends to be more flexible when problems arise, such as an unexpected delay or loss.  

    A line of credit specifically designed to meet the challenges faced in contingent fee practice may be a good fit to help close the gap when necessary, allowing you to quickly adapt to your firm’s needs as they change. Alternatively, there may be other financing products better suited to your firm’s business model, such as a non-recourse advance or a post-settlement loan.

    As you continue to monitor the ever-present changes that are today’s reality while simultaneously planning for the future of your firm, work towards keeping your firm flexible and agile in order to achieve long-term success. Having a solid blueprint for the future and the capital to effectuate your plan securely in place will keep your firm strong and in the best position to serve clients.

    Categories: Financing Basics

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