8 Guaranteed Profit Drivers for WA Legal firms – Part 2

Last week we explored

• Keeping Costs as Low as Possible
• Highly Structured and Efficient Billing and Debt Collection

This week let’s look at

• Marketing and Business Development Activities
• Strong Cashflow Management

MARKETING AND BUSINESS DEVELOPMENT ACTIVITIES

1. Generally, this function is considered a soft skill – and not something you may consider a “finance” area of focus. But as you know every area of business has some impact on the money, sometimes directly or indirectly.
2. Do you know how much you are spending to recruit new clients (or even keep existing clients), and how does that compare to what your competitors are spending?
3. Do you know which area/s of your marketing give more bang for your buck? Are you actually tracking it, or is a best guess? Is it networking, your static website, SEO and Google ads, or is it the alliances and referral partners that give you the best value for money.  Next question is; by how much?  Make sure you don’t have a “all your eggs in one basket” approach.  Spread your marketing focus.
4. This may be a small part of your monthly finance meeting, but it’s a really important discussion, especially when looking at cutting costs (see previous article). Unbeknown to you, you need to avoid “biting the hand that feeds you”.

STRONG CASHFLOW MANAGEMENT

1. As we all know, Cashflow is (absolute) King in business – especially legal firms with lumpy inflows, and especially those that work in the Personal Injury sector.
   1. Depending on the size of your firm, cashflow forecasts need to be updated and reviewed either weekly or monthly.
2. Continuous, reliable up to date forecasts are absolutely imperative.
   1. These include short term: Family Law & Personal Injury Deferred payment cases settling dates and values as well as reasonable expectations relating to PI cases. (These require continuous communication and should include the staff member handling these cases)
   2. Long term: Reasonable expectations relating to increase in productivity as hourly rates increase or staff changes take place, matched with relevant outflows.
   3. Forecasts should be updated for at least 12 months in advance – even though the next 2-3 are the most reliable for cashflow forecasts. It important that these cashflow forecasts are updated based on what is actually taking place in the firm – not what we want to happen.  There is often a big difference between our target and what actually happens.
3. The Silly season is an especially challenging time of year with billing generally low. Do your best to encourage staggered annual leave during the year (for legal / billing staff), especially between the mix of staff with school going children and without. Be prepared with a “money buffer” to withstand outflow commitments during this time.  What else can you do? If this won’t make enough of an impact to billing over those months, make sure start the conversation with your bank manager early, to avoid the last-minute bank account squeeze.
4. Be particularly aware of the delayed BAS period for December payable in Feb, and the March quarter payable only two months later.
5. Avoid the Tax-Man-Catch-up game, with regular check ins with your Tax accountant regarding tax expectations. Rather be “on the front foot” with tax saved during the year, and avoid those nasty year end shocks!

Taking steps to action these two” financial” profit drivers and the two from last week could be “just too hard” or “too time consuming”.  For many these are beyond the capabilities of your bookkeeper, and may not be the area of expertise of your office manager/practice manager.

The best compromise could be a part time CFO, who specializes in customised financial support based on your budget and needs.  The cost is relative to a junior staff member, and the benefit can span expertise in many areas of business finance, ranging from profit improvement, working capital management, cashflow management and maintaining or improving banking facilities. You can find out more here: Home – CFO Centre Australia (wpengine.com) .  If anything, just a small 15-minute phone conversation could lead to driving more profit.

Keep an eye out for next week’s profit driver “bites” as we look into Retaining Quality Staff  And Strong Financial Management.