Good cash flow requires management and financial controls, two disciplines that operate as limitations on the independent actions of attorneys in group practice.
While management’s use of these controls can be unpopular with partners, careful financial management will bring rewards – improved operating results and avoidance of unhappy or even painful surprises. Management must understand that cash flow, although principally the result of a firm’s net income flow with depreciation added back, is also affected by changes in a firm’s balance sheet that do not “pass through” the income statement. For example, an increase in assets reduces cash; decreases in liabilities, including capital accounts, reduce cash; and the reverse is true: Decreases in assets and increases in liabilities, including capital accounts, increase cash.
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