This firm was referred to us by their bank, as they had caused the bank’s relationship manager significant problems over recent years through ineffective financial management and a seeming unwillingness to respond to his attempts to resolve the situation. We immediately set to work analysing the situation and getting to grips with the issues.
Small Law Firm Financial Management
The firm experienced (and caused) specific difficulties in the following areas:
• Lack of a commercial approach to business issues – in particular, insufficient cash flow despite refinancing borrowings
• An unacceptably high level of ‘lock-up’, to the detriment of profitability and cash management
• Capital repayments to a former partner not being managed sensibly
• The Profit and Loss Account showing the ratio of expenditure to income to be out of line
• Certain key fee earners not achieving the requisite fee levels
• The mix of work (especially with regard to Legal Aid profits) not allowing for adequate profitability
We carried out our usual thorough assessment of the firm’s issues, including analysis of all relevant financial information and interviews with all key staff. As well as the problems highlighted above, we discovered a need for cultural change to define partnership responsibilities and to achieve greater productivity from more junior staff. We also found a need for changes in working methods and use of support staff to improve efficiency.
We helped the firm to embark upon a cash flow improvement project which should enable them to stay within their borrowing limit (of approximately £85k), although the scope for short term improvement was limited. Our proposed business plan, involving necessary cost reductions and improvements to working methods, would have the firm with nil debt by the end of the 2010-11 accounting year.
The firm has already improved its lock-up position significantly and, unavoidable fluctuations aside, is currently managing to stay within its borrowing limit. There is still some way to go but, assuming our plan is implemented effectively (and we will be involved to ensure this is the case), the firm should be on track to achieve the financial targets set and become profitable and cash-positive within the time-frame set out.
The firm’s management have been delighted with the results of our work, and we now regard the firm as a long-term client. Moreover, the bank’s relationship manager has given us extremely positive feedback and has found the firm far easier to deal with since our involvement.
We are currently moving the firm onto our specific law firm Remote Support Package, to help ensure that they continue to manage their finances effectively and achieve their targets.