Business growth. Business financials. These are two totally unrelated business disciplines, right? One is for the driven sales and marketing side of the team, and the other is the analytical, data-minded side that’s keeping everyone between the lines.
This way of thinking is completely off. It misses the point of the financial side of running a business—which when done properly provides a roadmap for growth and achieving goals.
Most law firms want to grow. They want to build on what they have, make a greater impact, and have excess cash flowing through their businesses so they can distribute it out in a variety of directions based on the specific goals of the owner(s).
Do you ever feel like your business is on a hamster wheel, and no matter how much things grow nothing ever changes financially for you or the business?
That’s because most business owners don’t know the financial metrics behind growth and cash flow. And the truth is, the answer for business growth can be found inside your numbers.
Using Data to Drive Growth
The most successful business owners know how to think like a CFO—predicting their growth and using additional revenue to fund what they really want.
You don’t have to be a financial expert, but you do have to know what to look for. For example, how does goal-setting work in your law firm?
For many law firms, there is no deliberate growth strategy. You work hard and depend largely on referrals—which are not predictable. With good data, you can make annual, quarterly, and monthly projections with real-time feedback.
Your numbers will guide you on the critical actions needed for growth and allow you to make proactive decisions, instead of reacting to what has already happened.
By viewing financial fundamentals as a necessary evil, you miss key insights that can accelerate your growth.
Know Where the Cash Is Flowing
For most businesses, growth comes at a cost. In a law firm, you have to support the growth with staff.
That seems fine, but the reality is that sometimes you can hire to support growth and forget to calculate that it’ll take some time for the new employee to ramp up—and if collecting revenue is lagging behind, you can find yourself in a cash crunch.
When this happens, you can easily find yourself in a back-and-forth of pushing for growth, then slowing down to support it.
The best way to avoid this is to grow steadily, and fill some cash reserves before hiring so you can be ahead of any cash challenges.
To do this, you need to know where the cash is going in your business. Are you able to consistently generate a profit? If you created more revenue, could you put some cash away or does it go right back out?
Knowing where the cash is going is the first step in driving your business’s growth.
The other way to avoid this trap of finding a plateau is to look forward.
Stay Ahead of the Growth With Forward-Looking Data
The biggest financial problem for most business owners is they look backward, not forward. Only looking backward makes it impossible to grow.
Think about this scenario. You go through a month in your business. Your team is working hard, and you are making progress. The month wraps up.
By the 10th of the next month, you get your financial reports.
By the 12th, you actually look at the reports. You have some questions and go back and forth with your bookkeeper.
By the 20th, you finally understand what went right and wrong for the month. But it’s the 20th! You’ve already let another month go by without making an adjustment, and you’ll soon be repeating the cycle all over again.
There is no control in that scenario.
When you invest in marketing and growth, you should be mapping your activity to real-world goals. When you develop goals, the path between where you are now and where you want to go is measurable. It relies on key data points.
You should be predicting your sales growth and expenses, and then comparing your budgeted totals to actuals as they come. Then you can make adjustments in real time.
Where to Go From Here
The good news is that none of this has to be complicated. With technology, you can pull your key metrics into one place to track what’s happening versus your goals.
You can even see your progress on a real-time dashboard. Rather than looking backward and chasing spreadsheets, you can be a data-driven, growth-minded law firm.
Instead of just getting by and feeling out of control, you can build goals and look forward with confidence. The key is to prioritize financial insight. If you view it as a necessary evil, you’ll always avoid the topic, and your numbers won’t work for you.
When you learn to love your data, you can use it as part of your strategic growth engine and design the law firm you want!
About Kahuna Accounting
If you’ve neglected your financials or never truly felt the power of knowing your numbers, Kahuna Accounting is helping law firms get a fresh start on their systems. Just head here and set up a call with their professional team.