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Managing Fiscal Fundamentals

By James D. Cotterman
August 12, 2003

Understanding a law firm's fiscal affairs is not that difficult. One need only understand a few basic concepts ' concepts that are no different for the law firm or the law firm's clients. The trick is not in understanding the numbers but in managing for results. For a law firm, this is an even greater challenge. Its owners are well educated, strong willed, success driven, practice focused, independent minded and, at least for trial lawyers, somewhat more argumentative than the general population. The owners are also large in number relative to the total number of employees and are active in the day-to-day operations of the firm.

Key Fiscal Performance Measures

Cash Flow and Cash Gap ' The lifeblood of any business is its ability to generate positive cash flow. It does not matter if you are Exxon or the neighborhood pizza shop. Positive cash flow is a requirement. That basic concept was temporarily forgotten with the dot-com companies in the latter half of the 1990s. The sudden and severe loss of market value in those companies during 2000 was primarily due to the re-emergence of this business fundamental.

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