Litigation can be a long and expensive process. From expert witnesses and depositions to travel and trial technology, the costs associated with building a strong case can add up quickly. Many firms choose to cover these expenses using their own capital—a strategy known as law firm self-financing. While this may seem straightforward, it comes with significant trade-offs that can impact your firm's financial health and ability to grow.
At Advocate Capital, we work with contingency-fee law firms nationwide and understand the critical financial decisions attorneys face. Below, we break down the disadvantages of self-financing and explore alternative attorney funding options, including case expense financing.
The Cons of Law Firm Self-Financing
1. Cash Flow Constraints
Contingent-fee law firms that fund their own cases practically offer interest-free loans to their clients. Tying up your firm's capital in case expenses can strain your cash flow and limit your ability to invest in operations, marketing, staff, or new cases.
2. Increased Financial Risk
Every dollar spent from your operating budget on case costs is a dollar unavailable for emergencies or unforeseen needs. This financial strategy increases your exposure to financial risk, especially in lengthy or complex cases.
3. Slower Growth
Due to budget limitations, firms that self-finance may hesitate to take on high-cost cases, even if they have substantial merit. This hesitation can hinder your firm's growth and ability to serve more clients.
4. Opportunity Cost
Every dollar you invest in a case is a dollar you're not investing elsewhere—such as technology upgrades, attorney training, or client acquisition. The long-term opportunity cost can be significant.
Why Consider Case Expense Financing?
Case expense financing offers a strategic alternative to law firm self-financing. This specialized funding model allows law firms to access capital specifically for case-related costs while preserving their operating funds.
Here's how it works: Your firm is reimbursed for your case expenses. You pay monthly for the interest on your line balance. If implemented properly, the cost to your firm is next to nothing because your firm can recoup the borrowing costs at the successful conclusion of every case you win. When a case concludes, you use the case proceeds to pay the principal borrowed for case expenses. Using our money, you can get your post-tax profits out of your cases and back into your bank account. The result? Your firm can pursue justice without sacrificing financial growth and stability.
The Benefits of Case Expense Financing
1. Even Better Results: Hire and retain the best experts for your clients' cases without worrying about how it will affect your cash flow.
2. Competitive Edge: Compete more effectively with the deep pockets of insurance companies and corporate defense firms.
3. Improved Cash Flow: Keep your firm's capital available for other operational needs.
4. Greater Case Capacity: Take on more or larger cases without worrying about budget limitations.
5. Faster Growth: Free up resources to invest in your firm's development, technology, and talent.
6. Best of Both Worlds: Case cost financing gives our clients more financial flexibility. Many of our clients still self-fund some of their cases. Once your line of credit is established, you decide which cases to fund. You can start or stop funding a given case whenever you choose.
Making the Right Choice for Your Firm
Self-financing is not about whether you can finance your cases but whether you should. Our clients are all successful law firms that could fund their cases independently; however, their owners recognize that making an interest-free loan (your case expenses) is a poor business practice. Case expense financing can be an innovative, powerful tool for firms looking to grow, improve cash flow, and reduce financial stress.
At Advocate Capital, we're committed to helping law firms level the playing field against well-funded defense teams. If you want to explore financing options tailored to your firm's needs, our team is here to help.
Want to learn more about how case expense funding can support your law firm's success? Contact Advocate Capital today.
