Stop Working Long Enough to Save Your Biz

Published on: 
02/15/2012
A coaching client of mine had a major problem because he had a large receivables backlog and was making little effort to manage and collect it. With the pressures of the practice, there simply didn't seem to be enough time to get receivables current.

My advice to the lawyer was to stop working and focus all his energy on collecting overdue accounts. By not working for 30 days on a single new legal matter and focusing on accounts receivable collection, the money brought in could be the equivalent of many months' revenue.

Of course, "stopping" your practice is an over-simplification. Lawyers are ethically bound to assist current clients whose matters require attention and to consider representing potential clients who ask for assistance.

But any lawyer with an active practice must get the work (marketing), do the work (production) and get paid (collections). If you are not successful at marketing and production, there will be nothing to collect; however, if you are not successful at collection, there will be no firm at all.

To continue to engage in marketing and production, extending credit rather than collecting fees in the hope that these clients will give you more work, is putting yourself on a path to disaster.

Strive to get paid quickly for the work that has already been done. If the client hasn't paid the fee for the last matter while you begin work on the next, you have in essence extended a no-cost loan. Just as most banks will not carry you in the hope that you will pay on an outstanding loan, it makes no sense for you to carry clients on a vague hope of being paid as expenses pile up.

A suspension of all but the most essential marketing and production activity for a defined period of time can allow a lawyer who is behind on collections to focus on realization. In marketing or similar non-billable issues, priorities are harder to set because they typically are approached only after the billable work is done.

Unlike with client matters, there are no ethical or financial consequences for not meeting business priorities. They simply languish, to the long-term detriment of the firm. There are no threats of lawsuit for malpractice and few complaints from clients to the state bar because you didn't take care of your own financial well-being. The only consequence is that you may no longer have a business.

A practice halt of any kind is not a panacea. You must be able to afford it. A cash reserve that can cover four to six months of typical billing is essential. The more client invoices you have outstanding, the more cash you'll need while waiting for payment.

Yet, at the same time, you will need more money for supplies and equipment, staff support and office space, landlords, utilities and tax collectors. Make certain you can meet those demands during a practice halt.

Let me emphasize: This is a halt to marketing for new matters, not a halt in doing the legal work needed for your present clients. And once you are caught up on receivables, make certain you are never in this position again.

Diligently collect what you are owed. Otherwise, you have nothing to lose but your practice.

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