As you probably already know, the survival of any law firm depends on a healthy and uninterrupted cash flow.  

After all, if you can’t reliably cover your overhead, including salaries and vendor contracts, you can’t keep the lights on (or whatever the equivalent is if your firm offers remote or hybrid working). 

You also can’t reinvest in your business. Your firm’s cash flow is the lifeblood that keeps you growing and thriving, so you can provide top-of-the-line legal services while maintaining a robust financial foundation. 

So, if you’re wondering how your firm can boost its cash flow before the year’s end, keep reading. From reviewing profit and loss statements to reducing your accounts receivable with better billing practices, we’ll describe what to prioritize so your firm can enter the new year poised to meet your goals. 

How to prepare for end-of-year processes 

Here are four key ways law firms can boost their cash flow right now and get ready for smooth year-end processes: 

1. Reconcile bank accounts and credit card statements

By reconciling your firm’s bank accounts and credit card statements, you ensure accuracy and benefit your firm’s financial health in a couple of key ways. 

First, you can identify discrepancies or errors in your financial records. Addressing these prevents unnecessary financial losses and ensures record-keeping accuracy, ensuring compliance with financial regulations.  

Second, reconciling accounts gives you a better idea of your current financial position, which makes it possible to make more informed and strategic decisions for your firm. You can identify where funds are unnecessarily tied up and allocate resources more efficiently. 

Begin by checking your bank accounts, followed by your credit card statements. Go over fees that were charged to your account, along with interest and cash rewards you received. For any recent transactions that haven’t yet cleared, record them for your accountant.  

In addition, depending on which accounting software you use, it may not automatically link client expenses with the right matters—label all expenses correctly before moving on from this step.  

2. Review your profit and loss statements

Profit and loss (P&L) statements provide a comprehensive overview of your firm’s income and expenses, so they’re especially worth reviewing. Your P&L statement can give you insight into revenue growth, gross profit, and net profit margin. This information helps you pinpoint spending issues, create financial forecasts, and invest in the most profitable practice areas.  

When you look at your P&L statements, make sure that all income has been recorded and all expenses have been paid over the last year, including employee salaries, vendors, admin expenses, subscriptions, and more. For all vendors or non-employees who received payments of over $600, prepare their 1099-Misc forms (which are due to the IRS in January). 

Compare this year’s P&L statement to the previous year. Has your firm experienced growth in that span of time? If you notice minimal growth, consider why this might be the case, and take the opportunity to make adjustments for the upcoming year.

3. Review your trust accounts

Law firms have to hold client money in trust during the year in the form of retainer fees, settlement funds, and more. This task comes with a big administrative burden and a lot of compliance requirements, so reviewing trust accounts is a must for the end of the year. 

Legal-specific trust accounting software makes reviewing trust accounts for errors surprisingly straightforward. This is important, as client funds held in trust demand full legal and ethical compliance. 

First, generate a Work in Progress report to confirm that you have received payment for your work on trust accounts. Then, reconcile your trust account balances against your bank statements, confirming that all funds are going where they should be going. 

4. Reduce your accounts receivable

Your firm’s accounts receivable (AR) is the money that clients owe your firm for legal services that you have provided and invoiced, but that the clients have not yet paid. A high AR means that you currently have many unpaid invoices pending, while a low AR means that the majority of your clients already have paid their bills.  

As you can probably imagine, the lower your AR, the better. For firms seeking to maximize their cash flow before the year’s end, reducing your AR is essential.  

Shoot for zero AR if possible, but even lowering your AR will help improve your firm’s cash position, profit margins, and other key markers of financial wellness. 

The value of legal-specific billing tools for reliable cash flow 

Since a reliable cash flow is so important to the success (and continued existence) of law firms, it’s essential to keep your invoices going out on a consistent basis and to make it quick and easy for your clients to pay their legal fees.  

With digital invoices and credit cards stored securely in your system, clients can settle up with a few clicks whether they’re at their desks, in line at the grocery store, or scrolling on their phones late at night.  

Legal-specific billing tools simplify invoicing and client payments, streamlining invoice creation and improving your firm’s collection rates. For instance, these kinds of tools make it easy to manage retroactive entries by automatically adding past-due amounts to the next invoice. 

But is there a legal billing tool out there that eliminates the need for multiple software subscriptions, comes at a reasonable cost (with straightforward pricing), and uses secure cloud-based software to facilitate flexible working? Absolutely—it’s CosmoLex! 

CosmoLex fully integrates practice management, billing, and accounting 

Although there are plenty of legal-specific billing tools on the market, CosmoLex is the only fully integrated solution that lets solo attorneys and small to mid-sized law firms manage their practice, bill clients, and oversee accounting with a single login. 

With CosmoLex, you no longer need to maintain multiple programs to keep your firm afloat (that’s right—not even QuickBooks!). Instead, CosmoLex provides an array of practice management features in one intuitive, web-based application: 

• Time tracking 
• Billing and payments 
• Business accounting 
• Trust (IOLTA) accounting 
• Calendaring 
• Task, email, and document management 
• And more 

CosmoLexPay makes receiving payments faster and easier than ever, while CosmoLex’s built-in client portal makes communicating with clients both streamlined and secure.  

If you’re seeking a simple, cost-effective legal technology for your firm, sign up for your free trial or schedule your one-on-one today.