Canadian Lawyer

24 M a y 2 0 1 4 w w w . C A N A D I A N L a w y e r m a g . c o m Recognizing when your law firm is having cash flow problems may not always be easy, says David Bilinsky. But keeping a close eye on the firm's budget and reports comparing actuals to pro- jections is a good place to start. "The income statement does provide some insight into the sources and uses of cash, but the problem in Canada . . . it doesn't provide a true insight into the actual cash in the firm," he says. "Just looking at an income statement will give you a false reading on the actual cash being generated." A closer examination through a work-in-progress report shows whether lawyers are meeting projections. It also forecasts future cash flow difficulties if targets aren't achieved. An expanding firm can run short of operating cash when it invests in contingency files. Another area of concern is when law- yers bank time, but don't bill or are not producing. Bilinsky, a practice management con- sultant and lawyer for the Law Society of British Columbia, finds the statement of changes in financial position could prove telling. It takes the activities of the firm and reports on the sources and uses of actual cash in the firm. It also shows how much cash is being used in financing, investing, and operating activities. "Over time you can see trends and if the firm is spending too much cash say on investing or operating activities," he says. When advising firms, Colin Cameron makes some key suggestions to ensure they stay on track, have adequate capital to cover costs, and maintain enough cap- ital to continue on with business by pre- venting a "run on the bank" should part- ners lose faith in the firm, deciding to take their money and go elsewhere. His approach, when his Vancouver-based company Profits for Partners begins to consult with small- and mid-sized firms, often begins with an examination of the balance sheet. The focus is on reducing accounts receivable and work in prog- ress. Cameron cites a 2012 survey showing a firm invests more than four months of resources before receiving income on that work. That means the firm is pouring cash into the file, investing its overhead as well as lawyer and staff time, all affecting the cash flow, realizing no returns for an extended period of time. "We need to decrease that lock-up time," Cameron advises. "If that lock-up time is increasing, then you're experiencing a reduction in cash flow." The trick to avoiding problems, adds Cameron, is prevention. It can begin by ensuring the bill will, at the end of the day, be paid by doing a credit check on new clients, particularly those requiring extra time and attention. Net profit for most firms is in the area of 40 per cent. So if a client can't pay the entire bill, the realization rate is reduced and so is profit. Some research will also help to weed out problematic clients or those shopping around for a deal. "So the key is to avoid those kinds of clients. The firms that are truly successful are those that look at the cash brought in and the resources used to get it," says Cameron. "As you are approving new clients, you should also ask for a retainer (of a law offiCE ManagEMEnt Improve your understanding of Canadian constitutional law with this exceptionally thorough and well-organized work. This distinguished classic by a leading constitutional law scholar gives you: • Clear commentary on the meaning of constitutional provisions as interpreted and applied by the courts • A broad perspective with references to the constitutional law of other Commonwealth countries and the U.S. • The full text of crucial and often difficult to find Canadian and international constitutional documents, including all relevant Canadian constitutional legislation, the American Bill of Rights, and the International Covenant on Civil and Political Rights Rely on the legal classic to understand Canadian constitutional law Constitutional Law of Canada, 5th Edition Peter Hogg, Q.C. Available risk-free for 30 days Order online: www.carswell.com Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 Order # 981337-65203 $651 2 volume looseleaf supplemented book + CD-ROM Anticipated upkeep cost – $591 per supplement 1 supplement per year CD-ROM release anticipated cost – $133 Supplements invoiced separately 978-0-7798-1337-7 Shipping and handling are extra. Prices subject to change without notice and subject to applicable taxes.

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