Have you ever noticed that nearly every business that runs out of cash seems to run out of it “suddenly”? They’re focused on other priorities. They say, “I never saw it coming…!” Or worse, they saw it coming and either overreacted or chose to continue operating in denial. As the leader of your firm, you must keep a close eye on your cash flow.

Welcome to Gimbal’s Tip of the Week, where you get practical, actionable advice you can use right away to start building a more productive and profitable legal practice.

This week’s tip is simple: know your numbers. That means regularly reviewing the following key reports for your practice:

• Your WIP (work in progress)
• Balance sheet
• Income statement (P&L)
• Cash flow
• Accounts receivable

Over the past few weeks, we’ve shared tips in our How To Grow A Business series following the airplane analogy. So far we’ve covered 5 of the 6 key elements needed to run a successful business:

• Leadership = the cockpit 
• Marketing = the right engine 
• Sales = the left engine 
• Products and services = the wings
• Overhead = the body 

Today we come to the sixth and final element on our list: cash flow = the fuel tanks.

No matter how well an airplane is designed and built, it will crash if it runs out of fuel. The pilot needs to keep an eye on the fuel gauge. In the same way, you need to monitor the cash flow in your business. Without cash, you can’t operate.

It helps to filter every decision through careful consideration of how the financial outlay will affect cash flow. Think of this question as “the fuel filter.” Ideally, you should be allocating more resources to the wings (your products and services) and the engines (marketing first and sales second) than you allocate to the body of the plane (overhead costs).

Your action item this week: Set aside time this month (and at least once a month from now on) to review your key reports. By that we mean ACTUALLY setting a time. Put it in your calendar as a recurring event to ensure it gets done.

Your numbers will reveal healthy and unhealthy trends across your business. Is WIP consistently high? Consider changing your threshold for invoicing so you can move funds out of trust sooner. Are you carrying a lot of accounts receivable? Improve your collections process or task someone to make regular calls to all clients with overdue bills. Reviewing your numbers regularly will reveal course corrections you can make quickly to keep cash flowing through your firm, so you’ll always “see it coming.”

And don’t limit your review to your business and administrative operations. Look at how you actually practice law and deliver your services to clients. Ask yourself you’re using the most cost-effective and efficient methods. By adopting a culture of continuous improvement in your business AND your legal processes, you can reduce your overhead and improve your cash flow.

Professionals who regularly check their key reports are able to run sustainable businesses that are more efficient and profitable. They make wise investments and better financial decisions, so they’re never caught “suddenly” out of cash.

We hope you enjoyed this series. If you missed any of the tips then be sure to go back and catch up. Join us for next week’s Tip which will help you to build a profitable and productive law practice.