Question

Lance, Art, and Wayne have joined together to open a law practice but are struggling to manage their cash flow. They haven’t yet built up sufficient clientele and revenues to support their legal practice’s ongoing costs. Initial costs, such as advertising, renovations to their premises, and the like, all result in outgoing cash flow at a time when little is coming in. Lance, Art, and Wayne haven’t had time to establish a billing system since most of their clients’ cases haven’t yet reached the courts, and the lawyers didn’t think it would be right to bill them until "results were achieved." Unfortunately, Lance, Art, and Wayne’s suppliers don’t feel the same way. Their suppliers expect them to pay their accounts payable within a few days of receiving their bills. So far, there hasn’t even been enough money to pay the three lawyers, and they are not sure how long they can keep practicing law without getting some money into their pockets. Can you provide any suggestions for Lance, Art, and Wayne to improve their cash management practices?

Answer 1

Answer:

This is very simple, they should start billing their clients right away.

You don't have to bill your clients for the full legal expenses, but they for sure need to start making some money.

It is very normal that new businesses don't get enough revenue to cover their operation expenses right away. Even for big corporations, like Amazon and FB, it may take years to reach the break even point.

When you open a business you have to keep some money as reserve to cover some expenses for at least a few months.