During periods of crisis and economic uncertainty, the old saying “cash is king” is the appropriate mantra for most businesses. Maintaining the liquidity necessary to stay in business is now job #1 for law firm leaders.
To say that the economic fallout associated with Covid-19 is causing a decrease in cash inflow is an enormous understatement. In some cases, it is due to a fall-off in client/customer demand; in others it is driven by client decisions to purposely slow payments to protect their own cash position.
No matter the reason for decreased revenue, a firm must plan an appropriate response. While specifics will naturally vary depending on the severity of revenue decline, the following framework can help you approach the challenge.
We recommend firms create a simple net cash flow model using varying degrees and multiple durations of revenue decline. For example:
- Begin by forecasting a 10% decline in revenue for each of the next 3 months;
- Next, determine the steps necessary to manage cash balances for this period under these conditions;
- Next, substitute a 20% decline or a longer duration for each scenario, and develop detailed responses that allow the firm to survive in each case.
Now is the time to determine your response in the event of cash flow challenges. Don’t wait until the problem is upon you. Advance planning allows for better planning, better communication, better buy-in and a greater probability of survival.
If these thoughts prompt interest in additional discussion, we are offering private, confidential and free 30-minute discussion sessions. In order to manage client time demands and requests for these sessions we are limiting them to time slots from 3:00-5:00 PM (CST) on Tuesdays and Thursdays. To reserve a slot send an email to either of the below:
To read more on leading through law firm crisis, visit ManagingLawFirmTransition.com.