We are continuing to talk about the fourth area that makes up the five areas of every business in the world which is “billing.” You will remember the other four areas are: “Clients” or “customers”; “Administration”; “Getting the work done”; and “Collecting.”

This week we are going to finish talking about a form we use in our office called a “Daily Cash Sheet.” There is absolutely no substitute for knowing where you are at from a cash point of view on a daily basis no matter what kind of business it is that you are running.

Please remember the “Daily Cash Sheet” is broken down into the five work days of each week for a given week out of the fifty-two weeks of the year, and I further broke the sheet down into three parts:

1. Operating Account;

2. Trust Accounts; and

3. Fees and Expenses Received.

Last week we discussed the Operating Account, today we will discuss the last two areas of the “Daily Cash Sheet,” that being Trust Accounts and Fees and Expenses Received.

II. Trust Accounts

It is always helpful to know what your general trust balance is for multiple reasons. If you do not get your client’s permission to put your retainers in your general account, then you must put those checks in your general trust account and only draw on them once you have earned your fees. In our firm, we try never to put a retainer in the trust account, we always get the client’s permission to put it in the Operating Account. We have had some instances where the retainers have been so large that legitimately you must put at least part of the retainer in the Trust Account. The simple rule to remember is that if you will be utilizing the amount of the retainer within a given billing period, such as a month, I believe the rules provide that it is perfectly reasonable to have the client give you permission to put that in your general account. Additionally, we have had other trust accounts where clients have given us funds but they wanted interest on the money while we were holding it. Accordingly, we set up other Trust Accounts where the interest on the funds would not go to IOLTA that is run by our state bar, but rather would simply continue to add up in the account for the benefit of the client. When we had such additional trust acocunts, we called them special trust accounts, and oftentimes, we would number them so we could keep track of whose money was whose. You can write that in where the blank space is shown after the words “General Trust Balance,” and you can put that in as “Special Trust Account No. 1,” “Special Trust Account No. 2,” etc., or show it as a special trust account (Client Name).

Because we put client retainers in our general account with their permission, we have found that it is a good idea to know what is in our general trust account so that we can be sure that every dime that is supposed to be distributed from that account is distributed on a timely basis and to the proper party. Oftentimes, you will be able to simply look at the amount that is in the trust account and realize exactly whose money it is. This is reassuring, but if you need additional information, your bookkeeper will always be able to give you a detailed analysis of the same.

III. Fees and Expenses Received

Another one of those numbers that is always near and dear to my heart. Fees and Expenses received equals income. Positive cash flow is a good thing, positive cash flow is law firm nirvana!

As an aside with regard to this “Daily Cash Sheet” form, I would like to point out that there have been many instances of my counseling with clients with regard to their own cash flow and profitability problems. I must admit, I have encountered some of those issues myself. Consistently, what I have found in both my clients and my own experience, is that you can only cut expenses so far. There are simply some things that you must spend money on in order to do business. No matter how far you cut back, you will still have to have the basics in order to practice law. With that in mind, you might ask the question how it is that you can ever get out of a cash flow crunch or to make yourself more profitable? The answer is a resounding: “you’ve got to sell yourself out of your cash flow or lack of profitability dilemma!” What this means is there is absolutely no substitute for figuring out a way to get as much legal business as you can get, bill as much legal business as you can ethically and reasonably bill, and collect every dime that is collectable. By doing that, you will be able to meet your expenses, create positive cash flow, be profitable, and make a living practicing law! It is amazing to me that over the years: “the harder I work, the luckier I got!” If you can keep a lid on your expenses, you will be ahead of the game. If you both keep a lid on your expenses and “sell yourself,” and create the positive cash flow you need, you can become very financially successful.

I literally review this sheet every day. I don’t dwell on it, I don’t overly analyze it, I simply review it, know where I am, and get on with the next day and the next task at hand. Remember, I have stated several times, “you can’t manage it if you can’t measure it!” Another important thing to understand is “you can’t manage it if you don’t have the information about it in the first place.” “Knowledge is power,” knowledge about where you are at from a cash view point is not only “power,” but also peace of mind!

Next week we are going to talk about a sheet I have found very helpful that is part of our accounts payable system. We talked about it a little bit when we were talking about accounts payable, but I think it is important that we spend a little more time looking at this form so you can see how easy it is to understand exactly what your “nut” is on a bimonthly basis in order to keep your doors open. I think you will find the comments most helpful.

Talk to you next week!

Jim Wirken is a civil trial attorney and the Chairman of the Board of The Wirken Law Group in Kansas City.