Opinion: Is Your Law Firm Properly Capitalized?
• Will partners receive interest on the money they contribute? If so, what will be the interest rate? This is generally in the zero to 10 percent range.
• Will the firm pay back capital contributions? If so, how and when? It's been our experience that law firms usually pay partners back over a period of several years upon retirement.
Law firms should set aside enough working capital for the future, with the amount and method depending on the firm's strategic plan. Moreover, firms should be cognizant of how capital contributions impact their partners.
There is no set formula or "packaged" solution to determining how much capital a firm needs or how to raise it. Every firm is different; each has its own unique and specific cash flow cycle and has different expansion goals. But all firms should start at the same place: by clearly defining a strategic plan. "Only then can the firm make smart choices about how to finance its future." •