Category Archives: Cashflow

Nov 01

Download Validatum’s Report on Recovery of Expenses.

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It has for many years been customary for firms to include a variety of sundry charges at the end of the bill but a cost benefit/analysis may well reveal that whilst the practice generates additional gross revenue, this is probably outweighed by the negative effects on client perception and attitudes.  Firms have traditionally had a range of approaches to dealing with these consumables.

This free report based on a mini survey sheds light on what firms are currently doing.

Go here for your FREE DOWNLOAD

Oct 01

Shammah Nicholls confirms again … Get help on finances before it’s too late!

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Another law firm – Shammah Nicholls -  has been acquired from a pre-pack administration by Linder Myers and we now see more and more firms of all sizes being acquired and forced into mergers to save themselves, … but at great personal cost to the partners of the ailing firms.

If you’re struggling with finances, don’t leave it too late or you will lose control of your options to turn the business around or get out on the best possible terms.  Jon Miller here has a wealth of experience of working with law firms on initiatives to produce cash quickly to deal with the immediate problem … and building in longer term improvements in profitability.

Contact Jon Miller now for a confidential, no obligation review of your options on 07766 137759 or at jmiller@inpractice.co.uk if you think you’re struggling.  He’ll let you know if he can help at the stage you have reached today.

Surefire signs that you need help:

  • Cash has been tight on occasions – maybe drawings had to be reduced to pay VAT.
  • You’ve been on the edge of your overdraft a couple of times
  • There’s been a panic when some significant bill has to be paid.
  • You have already taken steps to reduce costs.
  • You can’t afford a senior financial manager in-house.
  • Your lawyers are too busy working to spend time getting unpaid fees and disbursements in.
  • Drawings haven’t gone up.
  • The bank is asking for more information than before

1 October 2012 – news that another firm didn’t respond early enough.

Linder Myers has rescued a second Manchester firm under a pre-pack administration.  The ambitious firm has taken on 16 staff after buying Shammah Nicholls LLP – most recently trading as SNG Commercial Law – from administrators Begbies Traynor.  Late last year Linder Myers took on Rowlands Field Cunningham after it too ran into financial difficulties . Sources said SNG Commercial, which had a turnover of around £1.8m  had stuggled to service high bank borrowings – it is understood to have owed lender Allied Irish Bank around £800,000. Accounts filed in May for Shammah Nicholls LLP reveal the firm owed its bank more than £850,000 in loans and overdraft – with some £704,570 due within a year. Loans and other debts due to members amounted to £563,833. Paul Stanley and Dean Watsion from the Manchester office of insolvency firm Begbies Traynor were appointed to the business on Friday and quickly agreed a deal with Linder Myers, which has been expanding rapidly in recent months. The firm now has 275 employees and 47 partners across its offices in Manchester, Shrewsbury and Lancashire.  Courtesy of  TheBusinessDesk.com

But Shammah Nicholls are not alone and it’s not just small firms that need help.

Read more from John Miller on the warning signs here.

 

Jun 12

Deal with financial stress before it’s too late

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Be honest – you’re worried about your firm’s financial position. You are likely to be managing a small firm of solicitors in the UK. Your firm probably provides a range of different services to clients, which may include some long-tail personal injury or similar work. Your firm is well established in your area and considered solid and dependable.

Like everyone else, your firm has struggled in the current economic climate and had to make cost savings in 2010. And of course you are aware of the current changes to the legal services environment – but the Co-op and Saga seem pretty removed from the world you inhabit (although QualitySolicitors’ recent funding announcement sounds a bit worrying).

So what’s the problem?  One of your partners is quite commercially minded and understands numbers better than the rest. He keeps a handle on the figures every month or so.  There is no senior financial input from within your firm as you can’t afford (and feel you don’t need) a full-time finance director or someone with that level of financial expertise. You have some idea of the overall billing each month  and you know that cash has been tight on occasions (remember two months ago when your drawings had to be deferred by a fortnight so the VAT payment could go out?).

That was a couple of months ago. Things seem to be even tighter now and your senior cashier is becoming more anxious as she tries to balance payments to receipts. What are you doing about those overdue receipts?  You know that your partners should be speaking to clients to resolve these issues, but they are all heads down in their work at the moment, so you’re hoping the clients pay up soon (they won’t).  Thinking about this, you realise there are other symptoms too.  It seems that, for the past couple of months, there has been a big panic whenever significant payments need to be made.

First it was the VAT, then last month … the payroll and the PAYE payments. 

Perhaps it’s time to push your drawings payments back so that these other payments can go out first?  There was also the firm’s professional indemnity insurance: you’ve never had a problem borrowing funds for this, to be repaid over ten or 12 months, but this time the lenders insisted on you all providing personal guarantees before they would lend your firm the money. You recall that they weren’t impressed about the lack of detail in your management accounts and the lack of any real cash forecasting at all.

Then there’s your drawings. These haven’t gone up for three years now and you’ve already noted that they are not always paid on time. It never used to be like this. You wonder what the problem is. You simply don’t have the information available to be able to work out that, for example, your business is now simply not profitable enough for you to continue drawing at the level you have been used to.

You reduced overhead and support costs in 2010, but you have not seriously looked at your fee earners yet. It seems that the ‘new normal’ fee income level simply is not as much as it was and keeping the current fee earners fed is proving increasingly difficult.  You could really do with analysingthe true value of everyone, but it’s not easy to know where to start. And it’s probably sensible to take another look at overheads too.

The bank doesn’t seem to be as supportive as it used to be. It’s made it pretty clear that it won’t countenance any increase in your overdraft facility and, at the previous renewal, it even mentioned the possibility of putting in place a formalised reduction in your borrowings.  The next review date is now looming and, to be honest, you haven’t a clue what its stance might be. Ideally you would want to prepare a business summary to support your renewal submission, so you could demonstrate your plans for the business and how you would want the bank to support you. But again you are struggling to get your thoughts together coherently and you are struggling to know how to model the financial implications of your plans.

If any of this sounds a bit like you, you are undoubtedly not on your own. Many medium-sized and small UK law firms are facing similar issues and it is those who recognise the symptoms early and do something about them that will stand the best chance of turning their businesses around quickly and successfully. These firms will take their heads out of the sand and appraise their businesses honestly and openly, because standing still is not an option.

To discuss your finances, call me in confidence and with no obligation on 07766 137759 

This article was first published in Managing Partner on 27th March 2012 and is reproduced by kind permission. See www.managingpartner.com

Mar 30

Our Top Five Fixes for shaping up to OFR

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Lost in acronyms?  Struggling to know where to start?  If so check out our Top Five Fixes to get closer to compliance.

Prepare a business plan

Principle 8 of the SRA Principles states that you must “run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles”. There are also relevant provisions in Chapter 7 of the 2011 Code:  Outcome (7.4) states that “You maintain systems and controls for monitoring the financial stability of your firm and risks to money and assets entrusted you by clients and others, and you take steps to address issues identified.  The SRA will therefore expect you to plan well in advance if you are considering any change to the structure of your firm and to have a business plan in place which shows that you have considered and regularly review the financial viability of the firm.  The new approach enables the SRA to concentrate its resources on business models that rely too heavily on, for example, introducers of large volumes of work, or on models that have a slim profit margin, potentially endangering the business viability of the regulated entity. It will also be necessary to review your business plan periodically to assess its effectiveness and consider possible changes.

Prepare a whistle blowing policy

Outcome (10.4) states that: “you report to the SRA promptly, serious misconduct by any person or firm authorised by the SRA, or any employee, manager or owner of any such firm (taking into account, where necessary, your duty of confidentiality to your client).”   This is supplemented by Indicative Behavior (10.10) which states that “having a “whistle-blowing” policy” may tend to show that you have complied with the principles. You should therefore develop such a policy which explains the process which a person within the firm should go through if they encounter misconduct either within or outside of the firm. In both situations this should includes clear reporting lines and the people responsible within the firm for reporting to the SRA.

Prepare an interest rate policy

Rule 22.3 of the SRA Accounts Rules 2011 states that: “You must have a written policy on the payment of interest, which seeks to provide a fair outcome. The terms of the policy must be drawn to the attention of the client at the outset of a retainer, unless it is inappropriate to do so in the circumstances.” Rule 22.1 states that: “When you hold money in a client account for a client, or for a person funding all or part of your fees, or for a trust, you must account to the client or that person or trust for interest when it is fair and reasonable to do so in all the circumstances.” There is a large degree of flexibility given to firms when deciding on what interest will be payable to client’s on money held client account.  It is also possible to contract out of the obligation contained in Rule 22.1, under Rule 25.1. When contracting out the client must give informed consent and therefore all relevant information must be made available to them at the outset to enable them to do so. The policy should therefore be included in your firm’s terms of business and any existing clients will require a letter explaining the policy and requesting their agreement. The policy should also be included in your firm’s Office Manual.

Comply with provisions relating to outsourcing

Outsourcing can provide for lower costs associated with accounts, disclosure, ICT support and consultancy and digital dictation services. However when using such services you must now ensure that clients are informed in your firm’s terms of business that you do not provide such services. You must also ensure that you make adequate arrangements with the entity you are outsourcing to so that the SRA will have the same access to the information which they store regarding your firm as they would if the service was being provided by you. This will mean altering your contract with them to reflect this necessity.

Select a COLP and COFA

The new SRA handbook requires both ABSs and solicitors firms to appoint a COLP and COFA in order to become or remain authorised.  The SRA Authorisation Rules for Legal Services Bodies and Licensable Bodies make minimum requirements as to who may take on the role of COLP: “8.5 (B) An authorised body must at all times have an individual:  (i) who is a manager or an employee of the authorised body; (ii) who is designated as its COLP; (iii) who is of sufficient seniority and in a position of sufficient responsibility to fulfil the role; (iv) whose designation is approved by the SRA.”  Similar provisions exist in relation to the COFA. However Rule 8.5 (g) states that the COLP must be a lawyer in order to be designated; no equivalent provision exists for the COFA.

The selection of the COLP and COFA must be approved by the SRA. The SRA will apply the Suitability Test when deciding whether to approve a non-authorised person candidates.  Whilst it was previously understood solicitors would be passported the SRA web site has a case study indicating that full screening will be applied to solicitors. The possibility of full screening of solicitors has been confirmed to us by the SRA (29.03.12) and that entails enhanced CRB checks. This process may present issues for those solicitors who have not previously undergone the Suitability Test or its predecessors. This may pose particular issues for the smaller firm with more limited choice of candidates for the COLP and COFA roles. Sabina Rinker has acted for those experiencing issues arising from the Suitability Test and she is very familiar with the jurisprudence which is developing at a pace.

We hope our Top 5 give you a starting point.

As always, if in doubt — take advice!

Tony Guise

Jan 03

Stay in the Driver’s Seat – Agile, pro-active and innovative law firms are winning

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Leaner and better managed firms are making their mark now as they benefit from the fallout from less successful firms that have struggled to manage their practice effectively and just can’t carry on any longer.  The most recent examples in Leeds and Manchester …

Brooke North - 3 January

One of Yorkshire’s oldest law firms, Brooke North, has closed after being hit by the recession. All 15 lawyers at the Leeds-based practice, which is thought to have been established around 150 years ago, have found work at other firms. Rodney Dalton, a senior figure at Brooke North for 16 years, said the effects of the economic downturn and the firm’s business model had impacted on recent performance. 

Mr Dalton said Brooke North’s approach of offering a bespoke service for its clients across different areas of law, rather than a “one stop shop” for all its clients had actually had a negative effect. This was because many of its owner-managed business clients had stopped using the firm when the recession hit as their own organisations had been impacted by the downturn and other work hadn’t filled the gap, he said. “If you add all that up it doesn’t present a particularly encouraging picture,” Mr Dalton said. “We tried to do a deal with our landlord to enable us to continue, albeit in a slightly different format. But unfortunately we couldn’t do a deal.  “We then looked at ourselves and another problem was there was little opportunity of a solution across the board. We didn’t have the bulk stuff such as second mortgage items to fall back on.

“We prided ourselves on giving a bespoke service to individual clients. The recession just slaughtered us.”  Mr Dalton, a property expert who has joined Lupton Fawcett following Brooke North’s break-up, said the firm had considered a merger with another firm but had decided against the move. He also claimed the firm had been approached itself by suitors in more prosperous times. “All we could see is that in 2012 we’ll be looking back at 2011 and saying that was a good year,” he said. “In the long run a takeover might have done us less good than a break-up has done. This has given us the opportunity to negotiate our own deals.”  The majority of the remaining staff at Brooke North, which numbered around 30, have found work elsewhere.

Rowlands Field Cunningham – 22 December

LAW firm Linder Myers has bought the business and assets of fellow city centre firm Rowlands Field Cunningham from administrators.  Insolvency firm MCR were appointed as joint administrators of Rowlands Field Cunningham on 22 December.   Linder Myers has said the deal will create a £16m-turnover business with almost 300 staff, including 43 partners. It will take on all 80 former Rowlands Field Cunningham staff currently operating out of offices on York St in the city centre and in Swinton.  The last filed accounts for the 12-partner Rowlands Field Cunningham show that the firm had a turnover of £4.8m in the year to April 30, 2010, but no profit was declared.

Rowlands was established in 1887 and only merged with Field Cunningham just over a year ago – a deal which was described at the time by managing partner Jon Andrews as “a very good fit”. However, the firm is understood to have since suffered with cashflow, which eventually led to it appointing administrators.  Bernard Seymour, managing partner of Linder Myers, who will head the enlarged practice, said he expects to achieve turnover of £16m in the next financial year and £20m within 18 months.

Earlier this year, Linder Myers bought an eight storey, 47,500 sq ft building at 55 Spring Gardens for its new headquarters building. It paid £8.1m.  Mr Seymour added that Linder Myers would continue to seek further mergers in Manchester and was in discussions with a number of potential targets.  “This is our biggest merger to date. It will give us greater critical mass and expertise, and will enable us to penetrate better in some markets,” he said.

Berkson Wallace from Ellesmere Port in administration, June 2012

Founded in 1902 fell, based in Ellesmere Port with work across the North West, employing 12 staff and posting turnover of about £400,000. It has been run by its current partnership team since 2006 and specialised in property transactions, personal injury and matrimonial matters.  Skelmersdale-based Refresh Recovery, which is currently managing the firm’s affairs, said it had suffered under a downturn in the property market and general economic malaise. “Prior to administration, most of the clients’ files transferred to other firms of solicitors,” Refresh told Insider. “All staff at the Ellesmere Port office, including the partners, have been dismissed but most of the staff in the Wallasey office transferred to another firm.”

Courtesy of  TheBusinessDesk

Nov 24

NW lawyers under pressure, but new initiatives are working … for some

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A recent survey by PwC showed that the average profit margin for law firms operating in the NW has dropped to 13% (2010: 16%), although average profit per equity partner in the North West increased to £246,000, with 60% of law firms reporting an increase in profits in 2011. Nationally most firms outside the top 10 reported a fall in profits.

The 40% of firms most likely to report falling profits have been the high street operators most likely to be impacted by the introduction of Alternative Business Structures (ABS). The working capital performance of most law firms has held up well, with practices reporting improvements both in the number of debtor days and the length of work in progress – but this is an area where many firms have performed badly in the past so it’s no surprise that financial pressures have forced firms to focus more on these areas. They are the easiest to control internally.

Worryingly, a trend revealed by the survey is that “despite market conditions, headcount has started to drift up again. Utilisation rates for professional staff have been flat or even in slight decline. Equally surprising, given the focus on support costs, has been the renewed upward trend in the numbers of back office staff for many firms.” Larger firms have started to look at more efficient ways of operating their own business, looking towards legal process outsourcing, offshoring and even “North shoring” – ie. maintaining work in the UK, but carrying more of it out in the North where office space and salaries are cheaper.

Greater Manchester Chamber of Commerce, Legal Sector can help law firm members in Greater Manchester (all sizes and sectors) to improve and develop their business – to reduce operating costs, increase profits and launch effective new business development initatives. These are areas where we can deliver radical reductions in operating costs and improvements in service to clients. All part of the rationale for the work by the Greater Manchester Chamber of Commerce in supporting the Legal Sector.

To get involved, any employees of legal practices that are members of the Chamber can join their LinkedIn Legal Sector Group here, participate in LinkedIn local “Special Interest Sub-Groups” each relating to Legal Technology, Financial management, HR & People development and Facilities management. We are also organising local forums for members of each SIG like this one for people involved in Legal Technology scheduled for 11th January 2012. To check if your practice is already a member of the Chamber, all you need to do is apply for membership of the LinkedIn Legal Sector Group here and we will take if from there.

Your practice could become members if any of your offices are located in the Greater Manchester area.

Download membership fee details here.

Allan Carton

Survey information courtesy of the Business Desk

Sep 12

A&O improve profits by £21m by reducing debtor days by 7 days! It doesn't take a lot in most firms to do this. We can make it happen.

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Most firms can achieve radical improvements in profits by focusing on key areas.  This is not rocket science – we have solutions that would help just about any legal practice, without spending any money on developing new business.

From The Lawyer going back a few weeks – “Tucked away in a dusty corner of Allen & Overy’s (A&O) annual report, beyond the talk of “a year of momentous change”, the Testino pics of Dave Morley and Wim Dejonghe and the police line-up images (you have to search but it’s page 33) is a real gem. The firm has effectively added £21m to its revenue not by doing a minute’s more work, but by kicking its partners hard to enough to get its bills paid on time.

The magic circle’s report confirms that it strengthened its cash position by £21m in the financial year 2010-11 thanks to a seven-day reduction in lockup, the gap between starting work for a client and being paid, from 138 to 131 days .

As finance director Jason Haines puts it, that seven-day difference means A&O has an extra £21m of cash in the bank. “That is cash we can use to make further investments in our future,” says Haines.  It would be a wise move although partners in other firms might just choose to pocket the money instead!

Either way – it demonstrates just one example of how speeding up recovery of payment on bills and more efficient processes in many other areas can easily justify investment in introducing a “lean approach” to business throughout the practice.

Talk to me on 0161 929 8355 or email me at acarton@inpractice.co.uk to explore the options at your practice.

Jun 07

4 simple, proven steps to generate more profit from your practice … quickly.

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Andrew Taylor, financial management, law firm, business improvement, merger

Andrew Taylor, Inpractice UK

This short article focuses on just 4 fundamental areas of sound financial management that enable us to help law firms generate more profit from the work they already handle in the business; the best starting point to develop a plan to improve the firm’s performance, without the need to generate new business.

  1. Prepare a Funds Flow Statement. Profit and cash are different things – cash is entirely dependent on profit. To start understanding your business better, we complete a simple exercise to reveal what happened to the cash between two dates, e.g. between last year end and this, in a Fund Flow statement. It quickly reconciles profit to cash and the movements in the bank balance. It takes into account such things as whether more cash is locked-up in WIP and debt than last year, the movements in how much you have “borrowed” from suppliers by taking credit from them and, importantly, it accounts for how much partners have drawn.
  2. Track working capital. It’s not how much you bill or how much profit you make, but how well you manage Working Capital (and cash) that will determine whether you survive in the current economic climate. Profit Per Equity Partner (PEP) is interesting, but it has little to do with staying afloat when cash is running out. Being armed with where your cash went last year, is only a starting point to understanding and managing the daily dynamics of your business.Working Capital – the difference between current assets (WIP, debtors and cash) and current liabilities (creditors (including VAT), overdrafts and short term loans is a measure of whether you have enough cash (or potential sources of cash) to meet your payments, such as salaries, rent and VAT, as they fall due.
  3. Focus on Lock Up. Managing lock-up is not just the responsibility of the accounts department. It’s up to partners and fee earners to take responsibility for billing and debt collection and this needs to become a major element of monthly Key Performance Indicators (KPIs) and of the appraisal process. Here’s a simple example of the impact an improvement in lock-up can bring: A firm with a turnover of £6m has WIP and debt totalling £2.5m. This represents about 150 days of turnover – so on average, this firm carrying out work on 1st April won’t get paid until 1st September. If the firm can improve its lock-up by (say) 30 days, the cash position can potentially be improved by £500,000!
  4. Develop a structured set of KPIs relevant for the practice and for individual departments. Lots of firms have a “monthly reporting pack” that can be anything from 20 to 50 pages thick, that contains the key information you need, but because of the volume, it’s invisible! These firms suffer from information overload and “analysis paralysis”, leading to poor management through a lack of focus on what’s really important. These reports should be tabulated on only a few sheets of A4. Other measures should be included where they are significant and relevant for particular types of work. For example. firms with PI departments might include reports on disbursements and CFA success rates and fees achieved. Anything else can be run on an as-needed basis, perhaps to drill down to the cause of a specific problem.

The added value that can be gained from implementing measures as simple as these can is easily measured – they usually result in the business having more cash available! This article has highlighted only a few simple things that can quickly make a difference. Future articles will focus on profit improvement exercises, productivity measures, the continued need for time recording (especially in a fixed-fee environment), budgeting and forecasting, more on cashflow management and a more in-depth look at KPIs and how to use them.

For more information about our practice improvement reviews and half-day partner workshops, contact Andrew Taylor, Inpractice UK

May 27

LSB conclusion on referral fees; leave it to the SRA!

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The Legal Services Board has dropped plans to force law firms to publish their referral fee arrangements on their websites, in its final decision on the regulation of referral fees published today.  The LSB said it would no longer seek to prescribe the precise measures that law firms and others must take to achieve greater transparency over referral arrangements.

Instead, it has set out what frontline regulators such as the Solicitors Regulation Authority must achieve by 2013, but it will give the regulators freedom to decide themselves what measures they want to impose on firms to reach this position.  It will still be open to the SRA to oblige firms to publish referral arrangements if it chooses to do so.

For more go here >>