Ten steps towards greater financial stability
Take care of your firm's financial management and your firm will take care of you, advises Martyn Caplan
There has never been a more challenging time to be running a law firm. Talking to solicitors around the country, including specialist and high-street firms, it is clear that adapting to the colossal changes that have swept the legal sector is essential, if they wish to survive and thrive.
The liberalisation of services, demise of legal aid, professional indemnity insurance headaches, and new regulations regarding fixed fees are all serious challenges to the legal profession. Law firms face a stark choice – adapt and invest to remain competitive or face extinction. These pressures are forcing firms to question their financial stability and, for many, raising serious concerns relating to planning and succession. With this in mind, here are ten potential steps that may assist:
1. Forget you are a law firm
Why? Because your firm is a business. The fact that your business happens to practise law is secondary. This is vastly different to the traditional way of thinking. For many years a majority of SME law firms have operated within a vacuum, comfortably aloof from the dramas and crises of the business world.
With increased competition, law firms need a professional business model and a business plan. What do we mean by a business model? We mean the mechanism through which a firm turns its products and services into revenue and profits. This should not be confused with a business plan which looks at planned strategy and objectives for the future.
2. Don’t put your clients first
No one is suggesting for a moment that clients are not important – they are, of course – but they alone will not keep your business alive.
Putting your business first creates the foundation for survival and benefits the client – because a well-run, profitable law firm can focus its energy on the needs of the client rather than internal fire-fighting.
Ensuring that the right lawyers and essential staff are in place creates a solid basis to retain stability, satisfy clients, and attract new custom.
3. WIP yourself into shape
How much is WIP costing your business? Many law firms continue to politely invoice after completion – and then wait a further 30 to 60 days to receive payment, obstructing smooth cash flow and creating cash-flow headaches.
Monies should always be obtained on account where possible (for profit costs, VAT, and expenses) and clients billed monthly. Ensuring that bills are paid in full, and additional monies obtained on account before conducting any further work creates an immediate positive impact on financial stability.
Have your accounting system set up to automatically send ‘seven-day’ letters when bills are not paid within 14 days, and then a second reminder letter seven days later. A final letter can be sent seven days thereafter indicating that it may be necessary to issue proceedings if payment is not made.
These steps assist the firm in avoiding bad debts while having money in the bank to pay VAT and lawyer and support staff wages and drawings. It will also negate the need for in-house staff to spend time on debt collection. If it is necessary to sue a client, outsource to another law firm. Paying a few pounds for a seven-day letter is likely to be less expensive than in-house time that could be better spent elsewhere. Also, consider the merits of payment by credit card, automated through a website, to assist faster cash flow.
4. Have well-balanced staff
So now you have cash flow and a business model in place, with the right staff to support it – don’t lose them! Good people are hard to find. Look at outsourcing all functions that are unnecessarily demanding and draining fee earners’ time. Enable them to focus on the important profitable work in the hours that they have – and lose unnecessary ‘overtime’.
Consider offering remote working options for part of the week. Providing a work/life balance is a key motivator for many people and helping your lawyers and support staff enjoy a better family/social life pays dividends in creating a happy, settled workforce and, ultimately, stability for your firm.
5. Work at home and bring your own device
With less time spent in the office, consider a BYOD (Bring Your Own Device) policy, whereby employees bring their own smart phones, laptops, tablets, USB drives, and more into the workplace, with the appropriate IT support and policies in place to ensure this approach poses no security risk.
As well as saving on equipment costs, having less staff in the office means the size of premises can be reduced and lower rent costs can potentially follow.
6. Outsource, outsource, and outsource some more
Outsource as much as possible – and think radically. Need an accounts department? Really? Or could you outsource accounts functions to cashiers who are constantly updated on Solicitors Regulation Authority rules, reducing the chances of regulatory breaches and only paying for services as required, save for a nominal annual commitment?
Need secretarial staff? Or could outsourcing dictation save on salaries, space, equipment, and potential redundancy costs? Better still, employ voice-activated dictation facilities which cost less and expedite the return of drafts the same day, for no additional cost and while fresh in the mind.
IT? ‘Surely not outsource?’ I hear you cry! Yet using a ‘hosted desktop’ has significant advantages. All software (constantly updated to latest versions) is stored on external servers, the best cyber security is maintained, client data is not stored on laptops and PCs, contracts can be terminated monthly if a fee earner leaves, and the data can be accessed from anywhere in the world by laptops, tablets, and mobiles. What’s not to like?
While we’re on the subject, are you really considering a long expensive photocopier contract? Or would outsourcing all substantial copying be more cost-effective?
7. Get tough on unnecessary costs
With tighter budgets clients are demanding greater value for money. So wherever you can, do more with less. DX charges can be abandoned, courier charges placed on the internet to get the best price, and postal charges substantially reduced. Can documents be scanned, saved in pdf format, and emailed, thus reducing copying and posting costs? As some not-so-small retail concern reminds us, ‘every little helps’.
8. Seek protection
Avoid leaving yourself open to risk. Using software such as Safe4 allows clients to log all bank information to a website, so there is no email tracking with banking data for hackers to attack. Introducing cyber security and protection of banking information does of course demand investment, but in return can encourage minimal increases or even reductions on insurance premiums and excesses.
9. In, not on
So, you now potentially have a model, a team, an efficient accounts system, outsourced departments, and cost savings. You, the business leader, have generated more time. Please don’t waste it on legal work – that’s what your team is there for. Your business needs you at the helm, driving it forward.
That demands time spent working on, and not in, the business. Use your newly available time to set your future. Spend time away from the office with your development team. Explore new ideas and different thinking. Plan effectively with clear objectives and, crucially, follow up afterwards with clear communications and actions.
10. Plan for the future
If I lost you at ‘business model’, you may wish to explore new alternatives that are being brought into the market through alternative business structures. These allow for individuals, teams, or firms whose success is being limited by lack of finance, know-how, or skills, to reverse their teams into a larger, proven organisation.
In exchange for a share of income, solicitors are unburdened of administration and their time is freed up to concentrate on client work and create a future for their firm. In some models, growth and development is encouraged and supported. Succession planning, enhanced earnings, and better work/life balance for senior lawyers could potentially come into play. It costs you nothing but time to talk and consider these options, and it could be your shortcut to financial stability both now and for the future.There has probably never been a more challenging time to be running a law firm. But there have probably never been more exciting opportunities to flourish either. Take care of your firm’s financial management and your firm will take care of you.
Martyn Caplan is co-founder and director of LawyersInc