In our earlier post, we talked about what should be in a ‘Key Statistics Report’. This is the second post in that series. In this post we are looking at the cash-flow impacts that such a dashboard or key statistics report could reveal.
This part of your Key Statistics Report is the nerve-center of your cash-flow analysis. This report looks directly at the factors affecting cash flow, both in the short-term and in the slightly longer term. These components of the Dashboard Report are as follows:
Cash Flow Analysis:
- net cash at start of period
- cash additions (fees collected, disbursements collected, other income)
- cash withdrawals (office overheads, disbursements paid, other disbursements)
- net cash remaining at the end of the period
- Expected Cash Flow requirements for the upcoming period (compare to net cash remaining in the Cash Flow Analysis)
Line of Credit Analysis:
- opening Line of Credit balance
- amounts repaid
- amounts drawn down
- net balance of Line of Credit
- net WIP at start of period (hours x standard rates)
- WIP added during the period
- WIP billed during the period
- net WIP at end of the period
Files / Clients Report
- Files opened/added during the period, by responsible lawyer and by originating lawyer
- Files billed during the period, by responsible lawyer and by originating lawyer
- Files collected during the period, by responsible lawyer and by originating lawyer
The first component is the cash-in/cash-out analysis (cash at the start of the period, plus any additions, less any withdrawals, resulting in the cash at the end of the period). The net-cash remaining is then compared to the expected cash needs for the upcoming period – answering the question: “Do we have enough cash on hand to keep us afloat in the short term?”
The Line of Credit Analysis looks at the buffer remaining in the firm’s Line of Credit: if the net cash remaining + remaining buffer in the Line of Credit is insufficient to meet the Expected Cash Flow Requirements in the upcoming period – the firm is desperately in trouble.
The WIP Analysis looks to see if he WIP is increasing, decreasing or remaining steady. Increasing WIP is a sign of upcoming cash shortages. Decreasing WIP indicates potential longer-term cash flow problems.
Lastly the Files/Clients Report looks at the matter from a much longer baseline – are you steadily opening new files? If not – again, cash flow may be adversely affected in the longer term. You need to keep files continually entering the hopper to keep the cash flow steady in the firm.
You also should be examining which lawyers are billing and collecting. More importantly, which ones are not? Why not? These questions need to be answered…the results could indicate someone is simply in a slump or caught in a difficult file. They could also indicate that a lawyer is facing a much deeper crises…and this is the early-warning signal…and needs help.
You should receive the reports in a timely fashion and ensure that *you* look at them as soon as they arrive. Examine the deeper meanings and whether or not your firm may be facing a cash-flow crises. Much better to know about it now – when you can do something about it – than find out later when your back is against the wall…