Good to Great
- About the firm
- North West Firm, Personal Injury, 1 Partner, 50 Staff
- The challenge
- To secure greater funding to facilitate further profitable growth.
- The firm was supported to become an ABS
- Turnover doubled
This is a case of growth under difficult circumstances and in spite of the well-publicised difficulties in the personal injury market. The average value of each case having been driven down in recent years, this firm was seeking to secure greater funding facilities to allow them to improve turnover and contain Work in Progress while maintaining profitability – all things they succeeded in achieving with our assistance.
The business in question is a specialist Personal Injury firm operating from a single office in the North of England, with a turnover at the time of under £3m and approximately 50 staff. The firm had a track record of consistent growth in turnover and profits but, as a PI firm with a large amount of work on Conditional Fee Agreements, there was a significant discrepancy between the value of Work in Progress as published in the formal accounts for tax purposes, and the commercially realisable value of the WIP.
Thus, the historic growth the business had enjoyed and the natural working capital cycle of PI work was leading to recurring issues in funding the growth, hence the desire to secure greater funding to facilitate further profitable growth.
Following an introduction from a potential lender who wanted us to verify the ‘true’ value of the WIP, the capacity of the firm to manage its growth, and an accurate picture of its finances, we set about conducting our typically thorough but efficient analysis of their accounts, focusing not only on profitability but also, crucially, on cash generation. In particular, we analysed the profile of their Work in Progress in far greater depth than had been done before, reviewing the valuation and collectability of over 2000 files.
There is often an assumption that all Personal Injury work follows a slow and unmanageable cycle from case inception to collection of the cash, but our view is that by breaking down the work profile into the type of case and size of potential claim, most PI cases can follow a largely predictable and manageable track and cash flows become controllable. By doing our detailed analysis of the files, we were able to report to the bank and the firm on the underlying values of the assets and the firm’s productive capacity and capability to manage the cases.
The initial result of this work was that the firm’s current lender was prepared to extend their finance facilities to allow them to expand their operations and further grow the top line.
However, having conducted this initial piece of work, it was apparent that there was great potential for the firm to do more – and to achieve far greater financial returns than had hitherto been possible.
The management information reports and monitoring systems we put in place enabled us to identify opportunities to grow the firm in the face of the particularly challenging conditions of the PI market. We helped them to put in place new channels of work generation and to improve and refine their sales process in order to turn prospects into clients. All of this work required management by capable people, and we assisted the firm in identifying the necessary people profiles and, in certain cases, helped them to recruit the right staff to enable them to fulfil their potential.
Following this extensive programme of work to review and improve upon their financial and sales capabilities, it became clear that growth would necessitate a review of the corporate structure of the business to allow the firm to capitalise on the potential for securing external finance to fund its growth, and we identified advisors with the appropriate experience and expertise to help them become an ABS.
The result of this process was that the firm achieved a rate of growth far greater than even we had anticipated, securing much more (and more profitable) work than expected. The cash profile of Personal Injury work (even with our uncompromising approach to Work in Progress) meant that they would therefore require further external finance to fund growth, and we assisted the firm’s management in finding and securing structured additional finance.
Having been brought in initially to perform a technical role, providing advice relating to finance and management information, we subsequently became involved in supporting their strategy work and wider aspects of management, helping them to develop their IT and case management systems to a new level, and becoming their ‘trusted adviser’. This relationship developed over a five-year period, initially supporting briefly during the financing and bank negotiation phases and preparing the first stage of management information developments, and thereafter becoming more regularly involved as the LASPO changes became imminent, and transitioning to strategy advisers over time.
Over the period of our involvement, and in spite of the changes resulting from the Jackson reforms and LASPO, the turnover of the firm has doubled to almost £6m and management of Work in Progress has improved such that WIP has increased by only around 50%. The firm also now has a more rounded management and a strong and clear approach to sourcing new work in a fully compliant manner, and they have developed a particularly effective and efficient process for managing high-volume, low-value road traffic accident cases. They have, in short, gone from ‘good to great’.