Oct. 1, 2014, – When a lawyer hangs a shingle, it’s more than just a law firm. It’s a business, and if you don’t pay attention to it, your firm won’t grow and it just might even fail. In this video, business coach Chris Carman talks about the business side of your law practice.

Stop Working ‘in’ the Business and Start Working ‘on’ the Business

As the owner of a firm, if you want to grow the firm you must allocate some time to work on your business — budgeting and forecasting, reviewing financials, creating a system or process for hiring and training new attorneys, and developing referral relationships with other professionals in your industry. While these things are not billable hours, which typically drive revenue, spending time in these areas will help create a future and help the business grow.

According to business coach Chris Carman, there are three main statements that business owners need to look at from a financial perspective: profit and loss income statement, the balance sheet, and the cash flow statement. Unfortunately, most lawyer/business owners only look at the first two.

To put your successful business plan in place, do the following three things: 

1. Budget for profit
2. Pay close attention to the cash flow
3. Track your progress

Budget for Profit

“I encourage people to build profit into their fixed expenses just like rent or payroll, and that includes their own salary.” Carman discourages looking at any ‘leftover money’ after salaries and bills are paid as your salary – your profit.

Begin by creating a budget for the year. Starting at the end of the year, determine what profit you want make, then work back from there to the weekly and monthly activities that need to happen to generate that profit.

Cash Flow Is the Lifeblood of the Business

“With any business, but specifically with attorneys, just because you are billing a lot of hours does not equate to cash in the bank,” warns Carman. “In theory it does at some point, but there is the gap between when hours are billed and when the money is actually collected from the client. Cash flow is king. Businesses go out of business when owners are not aware of when the cash is going to be available versus when the bills need pay to be paid.”

Pay attention to your cash flow statement, not just your profit and loss balance sheet. This statement helps you understand where the money is going and when it will be going, so that it is there when you need it.

Tracking Your Business Vital Signs

“As business owners, we don’t have to watch every single number in the business like a hawk, and frankly as the owner, there are other things you should be doing,” said Carman.

Just like a doctor checks your vital signs, so should you check the vital signs of your business. Carman advises lawyers to put together a scorecard. “Identify three to ten organizational numbers that will help you understand at a high level how your business is doing. In a typical organization those numbers may be revenue, profit, cash in the bank, billable hours, or percent of billable hours versus non billable, number of referrals, and so on.”

This scorecard easily helps you to see where there might be problems or opportunities in the business.

About Carman

Chris Carman, partner and business coach with ActionCOACH, Elm Grove, works with attorneys to help them make more money, work less hours, enjoy their business, and achieve their goals. Carman was a speaker at Business School for Lawyers seminars.

The Business School for Lawyers 301: Business Principles for a Successful Law Firm will be offered via webcast on Oct. 7 and 15, from 8:30 a.m. to 4:30 p.m. Register.