A Kickstart to Growth
- No. of employees
- c. 60
- The Challenge
- Profits were around 40% below benchmark levels and borrowings equated to approximately three months’ turnover.
- Changed the management structure of the firm and provided training for fee-earners
- The firm reached their profit target in one year.
This firm sought our help on a short-term basis to allow them to deal with some immediate problems of cash flow and profitability, and to achieve the growth in turnover and profitability they had been targeting. After a relatively brief (but timely) intervention, they were able to regain their confidence and achieve their financial goals.
A long-established firm in the South East of England with a good reputation, eight equity partners and around 60 people in total, the key problem facing the partners was that profits were around 40% below benchmark levels and borrowings equated to approximately three months’ turnover. With a solid mix of property (both residential and commercial), private client, family, company commercial and litigation work types and a healthy reputation in the local area, the firm had considerable strengths and the potential to achieve significant growth – but neither the partners nor the bank were comfortable with their current financial situation.
Having attended a seminar we had delivered in their area, the Managing Partner contacted us and explained the firm’s goals of improving cash flow, reducing their borrowings and regaining their freedom of action in order to then increase profitability back towards benchmark levels over time. This should, in turn, reinvigorate morale and regain a sense of lost momentum in the business.
Following an analysis of their management information and having interviewed all of the partners, we quickly identified that the cash flow issues were largely caused by one department, which was understaffed and unable to convert plentiful instructions into cash. This had led to an erosion of individual and collective confidence across the firm as a whole, with other departments underperforming largely because of the low confidence and morale, which had fostered low expectations.
We concluded that the starting point had to be a ‘cash flow campaign’ to reset performance expectations and get their fee earners (with training and support from us) to start to deliver against these new expectations. We also persuaded the Managing Partner that removing the blockage in the underperforming department would be most quickly and efficiently achieved by recruiting additional capacity to ensure that work would be billed and cash collected.
Crucially, we put in place a robust and detailed system of forecasting to make sure that there were ‘no surprises’ (a mantra most firms would be well advised to adopt), and additional monitoring of management information – focused on cash generation.
It became clear that the management structure of the firm was not optimal for achieving their financial goals, and so we suggested some changes of role among the partnership and thus freed up some partner time for management rather than fee earning. This helped them to focus on their strategy, which (with our support) was to reposition the firm as the ‘Local Hero’ – by strengthening community and professional links in their area.
Having assisted them for around six months in conducting their cash flow campaign and changing their approach to management (including financial management), we stepped back and provided ‘lighter touch’ support for a further year – until they were fully confident to manage their finances without our guidance.
This firm had plenty of talent, but had lost the confidence to make the most of it. By helping them to solve their cash flow problems (in less than a year) and helping them to achieve their profit target in one year (rather than their initial goal of three years), we were instrumental in the firm regaining its confidence. The ‘problem’ department is now a leader in its area, both in terms of performance and reputation, and the bank has also regained its confidence in the firm.
The partners have used their newfound freedom to act to make two small acquisitions, and the growth of the firm (organic and by acquisition) has seen them double in size and profitability in the two years since our involvement.
This firm showed more than anything that focusing on cash flow provides the freedom to act, and this can facilitate growth and improvement in profitability from a stable base. This also allows firms to focus on strategy, which in this case was to be the ‘Local Hero’ – a strategy that, with the right people and financial disciplines, can help smaller firms to outperform their larger rivals.