Most lawyers are great at being lawyers; but developing the skills and finding the time to effectively manage a business is not necessarily what they signed-up for.
It’s unlikely there are many lawyers out there who secretly yearn to become accountants; but focusing on three key accounting things within your business will go a long way to ensuring your business has a long and healthy life.
1. Managing Work in Progress
Any business which sells time needs a system of recording, managing and reviewing WIP. And it is that review that all too often slips through the net. Has all time been recorded – or are you doing work for free? How much of the booked WIP is actually recoverable? How frequently and quickly is time billed? And wouldn’t it be nice to benchmark your figures against others? Let’s not forget that simply billing is not “job done”; you have got to make sure you actually get paid …
2. Cash Collection
Successful (read timely) cash collection starts with setting client expectations early – both in terms of quantum and timing of billings. Where possible, the best strategy is billing on account. While you may feel reluctant to ask, remember your clients won’t give extended terms to their customers, so why should they expect it of you? Also don’t forget that you will need to raise a final bill and the best time to do that is not 4 weeks later at the quarter end when your billing targets are measured. Do it right then when you have a grateful and receptive client.
Frequently there is some confusion about just whose responsibility it is to collect the debt; is it the engagement partner or is it those people in accounts. Whilst both might, quite properly, be involved in collecting the cash it is often something which falls down the gap and does not get done. Lawyers bills are not run of the mill for most clients and can often get stuck in someone’s pending tray as “too difficult for now”. You need to know where your bill is in their payment cycle; and the dialogue with the client should not be just at either senior or junior level.
You have to earn your “profit” twice – once when you bill it and again when you collect it!
3. Working with KPIs
This is an area where an awful lot of firms simply do not have the right information on which to base decisions – and worse, do not have the ability to produce it. As a minimum the “dashboard” needs to show: aged WIP (including write offs), billings in period, a prediction of income, aged debtors and cash (and, quite often, lack of cash) in the office account. All presented for the month and financial year to date with comparisons against prior year and budget (which you did do before the beginning of the financial year, didn’t you?)
Nice to haves introduce some further granularity: revenue and margin per partner and fee earner, hours logged, margin by service area, aged WIP … the list goes on.
And all this needs to be in a format which any reader can readily understand – graphs and charts can be hugely valuable here. And better still, feel emboldened to actually want to ask those challenging further questions – and not simply put it in the bottom draw until the next partners’ meeting.
Tectona is dedicated to finding the right solution for owner managed businesses and has grown in two years to 13 finance directors and which specialises in offering a service focusing initially on these three key areas as a taster to see whether using a part time finance director is right for you and your practice.
If you would like to discuss this further with Tectona Partnership, please contact Mark Nicholls on 07818 407061.