Category Archives: Cashflow

FREE DOWNLOAD: What does good performance look like for a legal practice like yours today?

NatWestDOWNLOAD:   NatWest’s 2016 Law Firm Financial Benchmark Survey Report

” … median profit per equity partner is £111,000, which is £4,000 higher than the figure from last year’s survey.”  BUT “If firms could focus more on profitability and perform at the upper quartile point for gearing, recorded hours, recovered rate and margin, they would achieve a profit per equity partner of £409,000.”

“… median profit margin steady at 24%, close to the long-term average of 25%. This suggests that the legal profession has now implemented the necessary changes to earn at historical levels.  Are firms going to be happy with this level of profit?”

… and much more to help you set expectations for your practice.  The survey covers 390 firms, delivering robust regional and national data reference points.

DOWNLOAD your free copy of this informative 2016 report here >>

This is the largest annual benchmark report to date from NatWest, with contributions up by 15% from the 2015 report which you can also find here. 

Your business will suffer if your practice doesn’t get started on this … but your competitors do?

Unlock Cash4 “Lean” tools to radically improve your legal practice, but few lawyers in the UK have applied them … yet.

Given the current economic climate there has never been a better time to be leaner, more resilient and operationally agile, but what do these approaches actually mean in the context of running a lean legal practice? In this article, I will introduce you to “Lean”, its five core principles and some of the lean tools that you can apply to make your business more resilient, agile and profitable; also reducing WIP and improving cashflow.

What is Lean?

“Lean” has five ways of thinking at the core of five basic principles, enabling a business to ensure customer/client satisfaction, driving up profits and creating business processes that are efficient, effective and agile. To live by these principles, I can help lawyers to understand and apply a number of Lean tools and techniques to support its adoption that most are unlikely to have considered before (outlined below), adding a completely new perspective to how a law firm and lawyers could operate more effectively.

Without this Toolbox of lean techniques, it is very difficult for lawyers to envisage how they can work (often very) differently, to constantly improve the business and value of services to clients. Lean thinking should introduce radical improvements by enabling lawyers to capitalise fully on their expert knowledge but also release them to think afresh and “out of the box” about what best practice can be.

The five core principles of Lean are:

Customer Value – companies compete by consistently delivering greater value to customers than their competitors, and the first principle of Lean is the identification of what customers value, or more specifically, what they expect. To do this you need to engage with your customers and ask them! It may appear obvious that a legal client may want to win a case or mitigate risk, but how they do this and the processes they go through may be very different. Some may value an online process that is quick and simple; others may prefer the personal touch. Some want to maximise use of technology; others aren’t equipped to do that. You need to know that and to respond to their situation. A Voice of the Customer (VoC) study is a great way to elicit what your customers actually value.

Value Streams – all customers measure value through experiences. Your customers’ experience when engaging with you and other companies they deal with has a profound effect on how they perceive your value and set their expectations of you. The way you interact with customers to create value are “value streams”; interlinked processes that describe how you create value or – when they fail – how you destroy value. An example of a value stream within legal practice can be the process of completing a residential or a commercial conveyancing transaction. Both are made up of a set of basic building blocks. However, the value created at each stage for one customer can be very different for another. A “Value Stream Mapping” (VSM) exercise helps you to describe and understand how you create value … so you can then modify your approach to add more.

Flow – once you have described the way in which value can “stream” to your customers, it is essential to understand the efficiency and effectiveness of the streams. We call this flow and it describes how efficient and effective your “streams” are in actually delivering value to customers. An optimised stream will have zero waste, zero defects and deliver 100% on customer expectations. i.e. the “experience value” equals the “expectation value”, but this is rare. Examples of how “flow” is visualised in a legal practice can be:

  • The number of backwards and forwards communications between the various parties; and,
  • The amount of time spent waiting between each activity.

Based on experience, I’d estimate that the total time spent on a transaction is less than 10% of the total elapsed time. This level of inefficiency has a cost and an impact to the customer and your business. A “Waste and Defect Analysis” (WADA) helps to understand flow capability.

Pull – this principle focuses on the laws of supply and demand. It is generally easier to create supply than to stimulate demand and so there is often an imbalance. “Pull” centres on having the right level of resources/services available to meet demand as it materialises; often described as “Just in Time”. We see pull failures everyday in stockpiles and traffic jams where we experience the value destruction effects when we have to wait for things to happen before we can take the next step. Pull is a way of optimising delivery of value by ensuring supply is delivered to the ‘drum beat’ of demand rather than creating supply and hoping that customers will fall in line!

The new smart motorways are a way of controlling the supply of road space in order to meet customer demand. In legal practices this can mean the alignment of marketing and business development activity to ensure that all departments are working to capacity and not over burdened with work; or where a flexible and agile workforce or processes enable the practice to adapt to changing customer demand. To understand pull you need to complete a “Customer Demand Analysis” (CDA).

Perfection – imagine a world where everything you do is perfect; nothing goes wrong, everything works and there is no waste. You win every case you get or every contract is immediately accepted by a third party and never challenged. Perfecting a process is best achieved by internal teams focused on creating Zero waste/Zero defects. When your teams are embracing the other four principles of Lean, the focus on “perfection” becomes a self-fulfilling prophecy. An example of how “perfection” can be built into a process would be the use of checklists or “field-required notifications” to ensure that you gather all the data you need at the right time; otherwise some effort would be wasted or reworking might be needed.

Being “Agile” Helps Too

A further benefit of being lean is that it also makes your practice agile. By constantly reviewing what customers want/need and the value delivered; then adapting business processes accordingly, you are able to maintain customer satisfaction. A proactive “Voice of the Customer” activity enables firms to stay ahead of the game by starting to adapt processes and develop services that meet the customers’ demands. Agility does however add complexity, so there has to be a balance in how flexible you want to be.

Strategically, every business should be “agile”. Listening to the Voice of the Customer is invaluable in enabling you to achieve this as you develop your business strategy and improve your business.

As you start to adopt lean, your people will increasingly recognise business processes and they will begin to work more closely and collaboratively with your customers. Your business will become more resilient to changing demands and market pressures as you become more efficient and effective in what you do.

The question should not be whether to adopt lean, but “what happens to your business if you don’t adopt lean thinking … and your competitors do?”

If you want to discuss how Lean can help your legal practice, contact our leading consultant in this area, Dr Lee Williams at solutions@inpractice.co.uk or call +44 (0)161 929 8355.

Share this – Make it easier for your lawyers to rate their performance and get agreement on how to improve it.

Natwest Benchmarks 2015 Snapshot - Profit per Equity Partner, PEPDownload this free series of slides which condenses the key financial benchmarks identified in NatWest’s 2015 survey of law firms.   Then share them with your fee earners to set achievable expectations and develop a better understanding of the potential improvements that lawyers can influence directly to put more money in their pockets.  The challenge then is to explore and agree how best to do that.

The opening slides introduce the key components that you and your people can pro-actively work on within your practice to improve profitability.

The remainder pull out the comparative numbers for firms of different sizes and levels of performance that enable you to compare your performance with others, highlighting medians that can help fix some measures in the minds of your people.

NatWest Law Firm Financial Benchmark report 2015Good information here to work with that includes:

  • Fees per Fee Earner
  • Fees per Equity Partner
  • Profit as a % of Fees
  • Profit per Equity Partner (PEP)
  • Gearing
  • Fee Earners as a % of total headcount
  • Recorded chargeable hours per fee earner
  • Recovered rate per hour
  • Business Model options
  • Lock-up –  Work in Progress, Debtors and combined (days)
  • Partner capital as % of fees
  • Bank Borrowings as a % of real partner capital
  • Client account balances as a % of fees.

There is a good chance that you will find that your lawyers need more help to understand how the way they work and manage client relationships impacts directly on financial performance – and what they should change to make a difference.  This is an area where we provide powerful training and ongoing support to help you improve the financial performance of your practice.


TO FIND OUT MORE about how we and our business partners can help you to engage your people in more effective financial management of their work, call Allan Carton in confidence to explore what might work best in your particular circumstances. Tel: 07779 653105 or email acarton@inpractice.co.uk


Tackle the Problem: Help fee earners get focused effectively on their own financial performance

Unlock CashThis is a big problem for many law firms, but here is one of our  solutions to enable you to address it effectively; capable of producing big returns for your practice.

Focused on results from the initiatives we introduce in law firms that include technology, client relationships, development of people and process improvement, we are very aware of the obstacles to performance improvement that result from fee earners not fully understanding the impact of their own day-to-day financial management of cases and clients.

Very significant benefits can be achieved if all fee earners understand the financial implications of their day-to-day actions.  However, this is an area often overlooked in developing the business and personal skills of lawyers … and support staff in contact with clients.  Appropriate communication with clients is a critical part of any improvements, so it’s not just about the numbers.

Fee earners have the potential to make the greatest impact on the financial performance of any law firm. If they aren’t aware of the financial implications of how they interact with clients and are not comfortable with having financial discussions with clients, how can law firm management teams expect them to demonstrate the right behaviours?

The Solution:  Inpractice UK has partnered with the co-authors of the Law Society toolkit on financial stability in law firms, Armstrong Watson, to help fee earners improve their understanding of financial management.  The key aim is to help them get fully in tune with what and why senior management want them to evaluate their own performance (and that of their teams where appropriate) and introduce very specific steps to help achieve better results; often the beginning of a continuous improvement process.  There will be some quick wins immediately but much more to gain by carrying plans agreed here through, longer term.

As the SRA CPD regime is changing, we are finding that more law firms are getting a better grip on training; being pro-active to identify gaps in competence – then planning a blend of the most cost-effective training to develop people with knowledge and skills better aligned to improve the performance of the practice.

In this area, there are very significant benefits to be achieved by arranging training that is very specific to your practice in small workshop sessions in-house.  Fee earners can then be introduced to very specific opportunities to improve (and the potential direct financial benefits that can be achieved) in the context of your practice and their work.

Armstrong Watson currently provide this in-house training to partner and fee earner teams within law firms to:

  1. Make them more financially aware,
  2. Increase productivity and recovery rates,
  3. Reduce lock up to free up cash.

If you think your people could benefit from these interactive workshops please contact Andy Poole at Armstrong Watson on 07828 857830 to discuss how this could be designed to work most effectively for you – no obligation.  Quote our partner reference: INP10.

If you want to speak to us first for more background, please complete this contact request form or call us on 0161 929 8355.

Transform the Profitability of your Law Practice – Little Used System Reduces Overdraft by £675K!

KPI Dashboards (missing from many legal practice management systems) can enable you to focus on transforming the profitability of your practice, providing access to live, meaningful financial information you can see, share, talk about … and ACT on!

For Example:  Through better financial management – and without generating any new business at all – you can readily:

  1. Reduce your overdraft.
  2. Generate extra cash and profit.

But you need some objectives to work towards and to monitor your progress against – so here are some hard numbers to get your teeth into.  Do these returns justify an investment that equates to a few chargeable units per month per fee earner to get these systems running in your practice?

To achieve this you need firm-wide engagement, to monitor performance and work together on a daily basis to keep up the momentum and stay on track … but that’s what this is all about.

1. Productivity (Utilisation)

Take, for example – 40 fee earners charging 1,000 hours each.

  • Suppose each charges just one more hour per week which is billed at the average £125 across 45 weeks.
  • Creates extra £225,000 income, profit and cash.
  • Net profit from 25% to over 28%.

 > Reduces overdraft by £675,000 over 3 years

2. Expenditure

  • You probably already have significant fixed costs, so in the short term – attack the variables.
  • Assume £1.75m of £3.75m costs are fixed in short to medium term
  • Reduce remainder by 3% each year over 3 years – not too radical

  > Extra cash and profit of £175,000

3. Work in Progress

  • Examine procedures for moving work through quickly
  • Terms of business aimed at billing WIP at the earliest opportunity.
  • Aim to reduce WIP balances by only 5% over 3 year period.

  > This will release £200,000 against your overdraft

4. Debtors

  • Agree billing period with clients – monthly if possible.
  • Communicate overruns before sending a bill.
  • Set standard collection procedures which partners cannot easily override.
  • Aim to reduce debtor period to 2 months in three years.

  > This will release £500,000 against your overdraft

5. Disbursements

  • Paid disbursements are the issue.
  • Adopt “Zero tolerance” on unfunded disbursements where possible.

Ensure processes are followed in areas (such as Personal Injury and Litigation) where some funding is possible.

Now you know why KPI Dasboards are so important. CLICK HERE to find out the next steps to Make it Work for YOU!

Incentives lacking for partners to implement effective risk management … but do you feel the heat rising?

Boiled Frogs Don't Feel the DangerResults of an extensive survey by Managing Partner reached the “overwhelming” conclusion that “Partners need to take greater responsibility for risk management to better protect their firms.”

A key issue was identified as failure by partners to prioritise firmwide risk management over client work, which comes as no surprise, but has to be addressed; and not enough firms are tailoring remuneration to incentivise lawyers to get risk management right.

The results – due to published by Managing Partner in July and August – show that, for example, the lowest-ranking risks for firms, according to how respondents’ lawyers are currently rewarded, are

  • Pipeline management – just 8%, when this is about keeping a flow of business to keep your business and cash going.
  • Project management – just 11%, when it is critical to ensure that legal and management tasks are completed effectively on time
  • Data Security – less than a quarter at 24%!  So law firms appear not to be concerned enough about safety of client data?

Some of the solutions we use that can help you deal with these areas include:

  • Key account management programmes and client listening to develop and manage consistent flows of work and revenue from existing clients;
  • Personal and business objective management tools to help lawyers manage themselves and focus efforts in the right areas to be successful in their role
  • Project management and collaboration software to enable groups to engage effectively on projects and monitor / prompt progress.
  • Support to make decisions on IT infrastructure (including options to move to a securely hosted data centre) and development of stable technology.

To discuss how any of these solutions might work for you, with no cost or obligation, call 0161 929 8355 or complete this online information request form.

 

What can you achieve and do you want to make happen? We can show you how and help you do it.

Unlock CashRunning a workshop for a group of partners and fee earners for one of our clients on Friday reinforced the need to quantify the benefits that can be derived from new initiatives aimed at improving the business. 

What does that really mean?  What can really be achieved and what needs to be done to achieve it? 

Which reminded me of these numbers produced by Jon Miller from his real world experience as an FD in a law firm and consultancy work since then.

Example:  Through better financial management – and without generating any new business at all – a typical 40 fee earner practice can:

      • Reduce your overdraft by £675,000 over 3 years
      • Generate extra cash and profit of £175,000.
  • Release £200,000 against your overdraft.
  • Release £500,000 against your overdraft … and more.

Double these numbers if you are 80 fee earners etc.

Here’s how – but you need to be able to get firm-wide engagement, monitor performance and work together on a daily basis to keep up the momentum and stay on track.

To find out  how this can work for your practice, contact Allan Carton or Jon Miller on 0161 929 8355 or complete this contact request form.  We won’t charge you or require any commitment from you for a free, confidential consultation. 

Productivity (Utilisation) Take, for example – 40 fee earners charging 1,000 hours each.

  • Suppose each charges just one more hour per week which is billed at the average £125 across 45 weeks.
  • Creates an extra £225,000 income, profit and cash.
  • Net profit from 25% to over 28%.

⇒ Reduces overdraft by £675,000 over 3 years.

Expenditure
  • You probably already have significant fixed costs, so in the short term – attack the variables.
  • Assume £1.75m of £3.75m costs are fixed in short to medium term
  • Reduce remainder by 3% each year over 3 years – not too radical

⇒ Extra cash and profit of £175,000.

Work in Progress
  • Examine procedures for moving work through quickly
  • Terms of business aimed at billing WIP at the earliest opportunity.
  • Aim to reduce WIP balances by only 5% over 3 year period.

⇒  This will release £200,000 against your overdraft.

Debtors
  • Agree billing period with clients – monthly if possible.
  • Communicate overruns before sending a bill.
  • Set standard collection procedures which partners cannot easily override.
  • Aim to reduce debtor period to 2 months in three years.

⇒  This will release £500,000 against your overdraft.

Disbursements
  • Paid disbursements are the issue.
  • Adopt “Zero tolerance” on unfunded disbursements where possible.
  • Ensure processes are followed in areas (such as Personal Injury and Litigation) where some funding is possible.

⇒  There are savings to be made: not added as they are variable

 If you want to find out how to make this happen in your practice, contact Allan Carton or Jon Miller or complete this contact request form.