How to Forecast Cashflow in a Law Firm

Knowing how to forecast cashflow in a law firm gives owners a clearer view of what could happen to the firm’s cash position over the coming weeks and months.

A useful forecast doesn’t need to predict the future perfectly.

👉 It needs to make realistic assumptions about what is likely to happen — and highlight where cash pressure could arise.

How to forecast cashflow in a law firm

Before preparing a cashflow forecast for a law firm, you need a reasonably accurate picture of where the firm is starting.

This should include:

✅ Current cash balances
✅ Outstanding debtors
✅ WIP
✅ Expected billings
✅ Regular expenditure
✅ Known future payments
✅ Payroll commitments
✅ VAT and tax liabilities

The better the starting information, the more useful the forecast will be.

Start with your Current cash position

The first step is straightforward:

How much cash does the firm actually have available?

From there, build the forecast forward, on a monthly or weekly basis.

For example:

The closing balance for one week becomes the opening balance for the next.

This creates a rolling picture of expected liquidity.

Forecast Cash Coming In

This is where forecasting for law firms becomes particularly important.

Don’t simply assume that all outstanding invoices will be collected immediately.

Consider:

✅ Current aged debt

✅ Historic payment patterns

✅ WIP likely to convert into bills

✅ Significant matters approaching completion

✅ Disbursement receipts

✅ Bank interest receipts

Realistic collection assumptions are more valuable than optimistic ones.

If a £50,000 debtor has historically taken 60 days to pay, assuming it will arrive next month may make the forecast look healthier than reality.

Forecast Cash Going Out

The next step is to identify the firm’s expected payments.

These might include:

✅ Salaries, Employer National Insurance, Pension contributions, PAYE
✅ VAT
✅ Rent
✅ Software
✅ Subscriptions
✅ PII
✅ Tax
✅ Loan repayments
✅ Practicing Certificates

Regular costs are generally straightforward to forecast.

The challenge is remembering larger or less frequent payments that could materially affect cash.

Consider WIP and Aged Debt

This is one of the areas where a law firm cashflow forecast differs from a simple business bank account projection.

WIP may eventually become billings.

Billings may eventually become cash.

But there can be a significant delay between each stage.

The same applies to aged debt.

Revenue is not necessarily cash.

This is why owners should consider WIP, billing and collection patterns when forecasting future receipts.

And it is also why lock-up can have such a significant effect on liquidity.

Include known future payments

Some payments can be predicted with reasonable confidence.

For example:

🔎 VAT payment dates
🔎 Payroll dates
🔎 Insurance renewals
🔎 Tax payments
🔎 Loan repayments
🔎 Rent & Rates
🔎 Capital expenditure

These should be incorporated into the forecast rather than treated as surprises when they eventually leave the bank.

Good forecasting brings future commitments into today’s decision-making.

Build the Forecast 

For long-term cash management, monthly forecasting can often be more useful than getting bogged down in what may be happening on a daily or weekly basis.

A 6 month forecast, for example, can show:

Opening cash + expected receipts − expected payments = closing cash

Then the closing balance rolls forward into the following month.

This makes it much easier to identify periods where cash could become tight.

Test different scenarios

A forecast doesn’t necessarily need to contain only one version of the future.

Owners can consider different scenarios.

Base case
Expected collections and expenditure.

Downside case
Collections are slower than expected.

Growth case
Additional recruitment or investment takes place.

For example:

What happens if collections are 10% lower than expected for the next few months?

That question can be much more useful than simply looking at the most optimistic forecast.

Keep the Forecast rolling

A cashflow forecast becomes less accurate as it gets older.

That’s why a rolling cashflow forecast is often preferable.

As each month passes:

Actual results replace forecasts.

A new month is then added at the end.

At Moore Financial Management, this approach can be used across:

✅ 13 weeks
✅ 26 weeks
✅ 52 weeks

The appropriate timeframe depends on what the firm needs to understand and manage.

The Bigger Picture

Knowing how to forecast cashflow in a law firm is only part of the process.

The real value comes from using the forecast alongside other financial information.

Management Accounts help owners understand profitability and performance.

Aged debt and WIP analysis help identify where cash may be tied up.

Lock-up analysis helps bring those working-capital issues together.

And the cashflow forecast helps show what those factors could mean for future liquidity.

👉 Together, they give owners a much clearer financial picture.

Key Takeaways

👉 Start with an accurate current cash position.

👉 Use realistic assumptions about collections.

👉 Include WIP, aged debt and expected billings.

👉 Include payroll, VAT, tax and other known commitments.

👉 Forecast weekly where short-term visibility matters.

👉 Test different scenarios rather than relying on one assumption.

👉 Keep the forecast rolling and update it with actual results.

👉 The objective isn’t to predict the future perfectly. It’s to give owners enough visibility to make better decisions.

Continue the Series

This guide is part of the Law Firm Financial Management Series, exploring the key financial concepts every law firm owner should understand.

Next:

How Lock-Up Affects Law Firm Cashflow

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