Personal injury attorneys with a contingency-fee based practice typically experience a financial roller coaster. Some years can have smooth cash flows; some years cash flow can be challenging. So, how can attorneys avoid the cash flow roller coaster?
Attorney fee deferrals are a surefire way to normalize cash flows. Here’s how the personal injury attorneys that we work with use fee deferral to avoid this cash flow roller coaster: If they have a great case coming up, they can defer all or a portion of their fee from that case, and spread it out over the next several tax years. This way, they’ve covered their overhead regardless of how the next several years turn out when it comes to cash flow. They are secure knowing they can cover expenses to run the firm and their personal needs.
If the financial status of the firm takes a turn for the worse for the next couple of years, attorneys can rely on their fee deferrals as a safety net for their finances. Attorney fee deferrals are a great way to normalize law firm cash flows by spreading the income taxes and the income that comes into the firm over the next several years. With fee deferral, personal injury attorneys don’t need to worry about fluctuating between “feast or famine” in a contingency-fee based practice.