For a law firm that litigates or refers mass tort and personal injury cases, overseeing cash flow is absolutely critical to predict and proactively manage your firm. However, management of a law firm’s cash flow is often an afterthought for many attorneys who have inherited a non-level, financial playing field. As everyone knows, cash flow is very irregular for plaintiff firms as they only get paid and reimbursed when cases are effectively concluded. With countless cases taking years to bring to fruition, projecting one’s cash flow can be an intimidating task. The good news? American Law Firm Capital has more than 20 years of experience to help you through this analysis and task.
Upfront Litigation Expenses
Mass tort and personal injury firms normally advance all the expenses of litigation upfront in exchange for a part of the settlement. In a contingent case, a firm may devote hundreds of attorney hours and tens of thousands of dollars into a case. Not only do they have to supply the money up front, but they fund it with after tax dollars and if a firm does not win a case, it loses not only its time, but the cash spent in hard costs as well. In addition, it gets even more challenging on a law firm as the firm cannot deduct case expenses until the conclusion of each case. Firms then repeat the cycle and reinvest the fees and reimbursed case costs from fruitful cases into the next collection of cases. Thus, the more successful the firm is, the more cash- strapped they can become. It is a tough financial model.
The commonly omitted component in improving cash flow for most mass tort and personal injury law firms is something most non-legal businesses have been implementing for decades, leverage, on your cases or collateral. Historically, most lawyers have financed their costs out of their personal pocket, co-counsel fee arrangements, small restrictive bank lines, family members and other creative means since they began practicing, only because that is how it has always been. More good news, plaintiff firms today now have many more options.
A revolving line of credit, a delayed draw, and many other financial models can be one of the greatest and most significant tools in a plaintiff lawyer’s quiver to fight for justice. By using borrowed money and leverage to finance litigation expenses, a firm can eliminate some of the undesirable risk and burdensome tax concerns of self-funding. The firm can also now scale, better serve their clients and create a future war chest of capital to execute their business. Any interest, case costs or other operational expenses a firm pays lenders are now all immediately deductible and they can use the balance of their retained earnings for firm expansion while creating new and larger future wealth.
We are in a time where mass tort and personal injury law firms have more possibilities than ever when it comes to financing their practice, from traditional banks to specialty finance companies. American Law Firm Capital believes contingent lawyers should strongly consider using leverage on their portfolio and engaging new forms of capital available to scale and position their firm for a future, healthier financial position.
American Law Firm Capital
As one of the industry founders, American Law Firm Capital has an exceptionally experienced team in the new niche of legal funding. We are considered experts in Mass Tort and Personal Injury evaluation and funding. Our core group of lawyers and executives has been integral team members for one of the “American” companies for at least 10 years, having worked with thousands of law firms. We are proud of our reputation, exclusive industry agreements and awards we have received. We are confident that you will be impressed with our team, knowledge, and the tools we offer to help you to execute this critical “business of law” task in orchestration with your practice of law.
Call us today! We are ready to help you with this daunting task and a new loan facility.
Business Development Director
American Law Firm Capital Office