How law firms stay profitable and resilient when the market feels unpredictable

In a recent conversation with 8am moderated by Brittany Hoffman, we kicked off with a poll asking law firm leaders how they feel about their firm’s financial position right now: very confident, mostly stable, a little uneasy, or actively concerned. The results were split, with “mostly stable” and “actively concerned” running close together.

That split tracks with what I see across firms of all sizes and practice areas. The difference usually is not firm size. It is whether the owner trusts the numbers and looks at them consistently.

Real-life story: the firm that looked “fine” on the P&L…until payroll week

A firm owner came to me saying, “Revenue is up, and the P&L shows profit, but I’m nervous every time payroll hits.”

When we looked closer, it was not a revenue problem. It was a cash problem.

They had 3 things happening at once:

• Billing was inconsistent, so unbilled WIP kept growing.

• Collections were slow and mostly manual, so AR kept aging.

• Client costs were leaking through the credit card…court filing fees and other expenses were not consistently assigned to the right client, so they could not be billed back.

On paper, the P&L looked okay. In the bank account, it felt stressful.

Framework: the “Core 4” financial numbers to review weekly

If you feel uneasy about your firm finances but do not know where to start, start simple. In the webinar, I shared what I call the Core 4. These are 4 numbers you can review in about 15 minutes, 1 time per week.

1) Total operating cash on hand

Know how much cash is in your operating accounts (not trust). Over time, you learn what “safe” looks like for your firm…what balance keeps you out of trouble.

2) Cash outflows for the next 13 weeks

A 13-week cash outlook is practical. It is long enough to spot problems early and short enough to act on quickly. Start with what you know is going out (payroll, rent, software, insurance, loan payments).

3) Total lockup

Lockup is how much cash is tied up in:

• Unbilled WIP

• Accounts receivable

This is often where “profitable” firms quietly get squeezed. They did the work…they just have not billed it yet, or they billed it but have not collected it.

4) New client conversions

Leads do not pay your bills. Clients pay your bills. Track how many signed clients you are actually converting, because that number drives future cash.

Fix: how this framework improves profitability and resilience

When firms monitor the Core 4 weekly, 3 changes happen fast:

1. They stop making decisions based on gut feel and start using data.

2. They spot cash pressure weeks earlier (not when payroll is due).

3. They improve billing and collections habits because lockup becomes visible.

This is also where I remind owners to “break up with your P&L.” The P&L is important, but it does not show everything that affects cash, including owner distributions, principal portions of debt payments, and major purchases that hit the balance sheet before they hit the P&L.

Common profit leaks to fix first

In the session, we discussed 2 profit leaks that show up constantly.

Subscription creep

Free trials convert into monthly charges, and prices rise quietly over time. If no one is reviewing the credit card statement with intention, small charges become meaningful money.

Uncaptured client costs

Court filing fees and similar costs can be hard to match back to the right client, especially when multiple staff members file items on the same day. If you cannot identify the right client, you cannot bill it back…and the firm eats the cost.

Results: what “resilient” firms consistently do right

Resilient firms tend to:

• Avoid shiny object syndrome…they wait 24 hours before buying a new tool.

• Build cash reserves on purpose (even a simple version of Profit First can help).

• Look at the numbers weekly…not monthly, not quarterly.

• Automate billing and collections reminders where appropriate to reduce manual friction.

Conclusion

Uncertainty does not have to mean anxiety. Legal services remain in demand, but profitability is not guaranteed by revenue alone. Cash awareness, lockup control, and consistent weekly review are what turn “busy” into stable.