Professional services
Law Practice Cash Flow Calculator
Works practice cash flow, where work in progress is the money you cannot spend.
Result
Profit and cash are different things and a growing contractor can run out of cash while profitable, because the work is paid for before the invoice is. This models collection speed, not seasonality.
Get a Free Business AuditHow the calculation works
Invoiced amounts against the days clients actually take to pay, with costs paid monthly and the opening balance, giving the funding gap and months of runway. Legal practices carry two drags: unbilled work in progress, meaning hours worked and not yet invoiced, and receivables after invoicing. Both represent work already paid for in salaries.
What moves the number
- Days clients actually take against the stated terms.
- Unbilled work in progress sitting between work and invoice.
- Disbursements advanced on behalf of clients.
- Whether retainers secure the fees.
Where this one goes wrong
Billing delay is the half that practices control and frequently neglect: hours sitting unbilled for weeks are a loan to the client that nobody agreed to, and billing monthly without exception shortens the whole cycle. Retainers held in trust and applied against bills largely remove the problem, which is why they are standard in areas where they can be used. Advanced disbursements are the other drag, and on a long matter they tie up a meaningful amount with no return.
Before you quote
- Bill monthly without exception.
- Use retainers where the practice area permits.
- Collect or hold funds against disbursements rather than advancing them.
Questions
About this calculator
What causes cash problems in a law practice?
Unbilled work in progress as much as slow payment. Hours worked and not yet invoiced are a loan to the client that nobody agreed to, and the salaries behind them have already been paid. Billing monthly without exception shortens the whole cycle.
Do retainers fix cash flow?
Largely, where the practice area permits them, because fees are secured before the work rather than chased after it. Funds are held in trust and applied as earned, which converts the practice from a lender into a service provider paid for its work.
Should the practice advance disbursements?
Only knowingly, because on a long matter it ties up a meaningful amount with no return and no interest. Collecting them as incurred, or holding client funds in trust against them, avoids financing the matter out of the practice's working capital.
The formula
cash tied up = daily invoicing x days to get paid
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How to use this calculator
- Invoiced per month ($). Enter your own figure; the page starts at $68,000.
- Payment terms (days). Enter your own figure; the page starts at 30.
- Days clients actually take. Enter your own figure; the page starts at 46.
- Costs paid out per month ($). Enter your own figure; the page starts at $38,000.
- Cash in the bank now ($). Enter your own figure; the page starts at $22,000.
The result updates as you type, so you can try a figure, see what it does to days of funding gap, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Invoiced per month | $68,000 |
| Payment terms (days) | 30 |
| Days clients actually take | 46 |
| Costs paid out per month | $38,000 |
| Cash in the bank now | $22,000 |
What comes out
| Result | Value |
|---|---|
| Days of funding gap main result | 16 |
| Cash tied up in invoices | $104,267 |
| Monthly surplus | $30,000 |
| Months of cover | 999.0 |
There is $104,267 sitting in unpaid invoices, and customers take 16 days longer than your terms allow. That gap is the money you are lending them for free.
How sensitive the answer is
Holding everything else steady and changing only invoiced per month, this is what happens to days of funding gap. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Invoiced per month ($) | Days of funding gap |
|---|---|
| $34,000 | 16 |
| $51,000 | 16 |
| $68,000 example above | 16 |
| $102,000 | 16 |
| $136,000 | 16 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Invoiced per month ($)
- A money amount, starting at $68,000.
- Payment terms (days)
- A number, between 0 and 180, starting at 30.
- Days clients actually take
- A number, between 0 and 365, starting at 46.
- Costs paid out per month ($)
- A money amount, starting at $38,000.
- Cash in the bank now ($)
- A money amount, starting at $22,000.
What the results tell you
| Result | What it is |
|---|---|
| Days of funding gap | The headline result. A number. |
| Cash tied up in invoices | A money figure. |
| Monthly surplus | A money figure. |
| Months of cover | A decimal figure. |
Estimating is the easy part
The jobs you never hear about cost more than the ones you mis-measure. BDEVY builds the marketing, systems and automation that bring them in.