At some point, almost all lawyers struggle to find the cash necessary to pay both business and personal expenses on time. The variability of your income is typically to blame. Managing your expenses properly can ease the stress. Here are 5 tips from Envision Wealth Management to help attorneys manage both personal and business cash flow issues:
Many lawyers underpay themselves and then “catch-up” after quarterly distributions. Consider setting your salary to cover your basic core household expenses. Expenses such as vacations, excess loan payments, eating out, and entertainment should be considered non-core expenses. We often recommend that our attorney clients utilize 3 credit cards combined with 3 checking accounts: 1) for business expenses 2) for core household expenses 3) taxes and “joy” expenses. Try this over three months and in most cases, a pattern of business vs core vs joy expenses will emerge to help you set the proper salary.
Set a realistic cash balance in your business and household checking accounts that can cover 2 months of core monthly expenses, and don’t go below this number at any time. We find that the stress related with a lack of cash on hand can reduce your productivity and often leads to problems at home.
Maintain separate lines of credit for your business and for your household. Each line of credit should be large enough to cover 3-4 months of core expenses. Lines of credit are very useful during difficult times, but should be avoided for day-today expenses.
Quarterly bonus payments should be deposited into the third “joy” checking account. Pay quarterly estimated taxes owed, then “joy” credit card bills. Excess cash accumulated after vacations and entertainment should be transferred and invested to support your other goals, such as college funds, or retirement.
Avoid paying invoices too quickly. We find many firms process payables when they are received. Instead, set up a system to pay invoices a few days before they are due. This will allow you to hold onto your cash a little longer, giving you some breathing room.
Although differences between firms exist, one constant is our ability to help you. Our short term and long term cash flow modeling is part of every client’s overall plan and is always available on a personalized website for review at any time. Let our team help you better understand your cash flow and we will provide actionable recommendations to ease the stress of your variable income.
Jonathan Muhlendorf is a registered representative of Lincoln Financial Advisors. Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. CRN-2560447-053019
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