Law firm CFO services: from hours worked to dollars collected

Profit is an opinion until the hour is collected

The first CFO deliverable for a firm is a truthful pipeline, because between the hour a lawyer works and the dollar the firm banks sit four leak points — and most firms cannot name their numbers at any of them. Trust balances make the picture worse: money in trust is the client's, reconciled monthly under Law Society of Ontario rules, and it belongs nowhere in cash planning. A firm that feels rich because trust is full is a firm walking toward trouble.

We track these monthly, by practice area and by lawyer. The pattern is remarkably consistent: the leak is rarely effort. It is discounting at billing time and slow collection that nobody owns.

Partner compensation: every formula buys a behaviour

There is no neutral compensation model — each one pays for a different firm. Lockstep buys collegiality and shared clients, and can carry underperformance for years. Eat-what-you-kill buys origination energy, and punishes cross-selling while files sit with whoever landed them rather than whoever should run them. Modified systems — points, tiers, committee-adjusted formulas — trade simplicity for judgment. Our role is arithmetic, not politics: before a firm changes its model, we run three years of actual history through the proposed formula so every partner sees their own number under it, and the debate happens on facts instead of suspicion.

We also separate draws from distributions in the cash plan, so monthly partner cash flow stops masquerading as profit. Where partners hold their interests through professional corporations, the compensation plumbing has to respect that structure too.

The contingency book is a portfolio — fund it like one

Contingency files consume cash for years before they return any: disbursements for experts, records, and assessments go out today, and the fee arrives at settlement — or never, on files that resolve badly. A firm with a meaningful contingency practice needs portfolio math, not file-by-file optimism: expected resolution windows, disbursements carried per file, aging of the whole book, and a funding source chosen on purpose. Some firms fund disbursements from hourly-side profits, which works so long as it is priced and visible; specialist disbursement lenders exist when the book outgrows internal funding. What we prevent is the silent version — an operating line that creeps up every year with nobody connecting it to the contingency portfolio it is actually financing.

Succession and buy-ins: price the firm before anyone needs to leave

Succession fails when valuation is attempted for the first time under deadline — a retirement, an illness, a departure letter. We put a method in place early: what capital accounts hold, how WIP and receivables are treated on entry and exit, and how much goodwill a small firm can honestly claim, which is usually less than its founders hope. With a method agreed, a buy-in becomes a financing problem with known answers — reduced draws over a term, a bank-funded purchase, or an earn-in — instead of a negotiation that poisons the partnership it was meant to extend. Sole practitioners face a harsher version of the same question: without a transition plan a buyer believes, the practice is worth little more than its furniture.

Firms billing US clients carry a parallel set of questions — withholding certificates and treaty positions on US-source fees — covered on our cross-border tax page for lawyers. And when partner-level planning points at incorporation, our incorporation team handles the professional corporation setup.