Key takeaways
- Strong financial management may be a crucial consideration for you over the next few months as economic conditions decline
- By putting the right controls in place, you could help your firm remain resilient and respond effectively to the financial impacts of an unpredictable environment
- You may want to consider engaging fee earners across the business, and making them accountable for managing risk and pursuing collections within their client book.
As the impacts of the COVID-19 crisis ripple across society and the economy, strong financial management may be a crucial consideration for you over the next few months. You may want to consider preparing your firm by thinking about whether you have the right structures and controls in place – especially if financial management has traditionally not been a strong area of focus.
Here are some suggestions for your consideration that might help to keep your firm’s finances on track.
1. Making cash flow forecasts part of your daily routine
You may want to consider:
- Completing a cash flow forecast for the next six months
- Documenting your assumptions on the economy, the firm and your key debtors and creditors, then regularly reviewing them
- Putting structures in place so that you can review your cash flow position regularly
2. Creating a working capital strategy
You may want to consider:
- Reviewing your debt and equity position
- Thinking about whether changes in lock up and creditor terms could help you preserve cash and maintain working capital
- If you haven’t already, starting a dialogue with key clients. If they are facing financial difficulties, thinking about ways to assist them with making their payments
- Reviewing creditors to consider how you can manage the timing of outgoings
- Making yourself aware of any concessional offers from suppliers, such as the Law Society’s lengthened payment terms for subscription-based services.
3. Stress-testing your revenue projections
You may want to consider:
- Modelling multiple scenarios for potential revenue reductions
- Thinking about how you would respond to each scenario
4. Deploying resources to the most resilient practice areas
You may want to consider:
- Monitoring the performance of each practice area and identifying opportunities to redeploy both lawyers and business development staff to areas that have remained resilient or have shorter lock-up cycles
- Thinking strategically about the areas that will perform strongly over the medium term, and repositioning the firm to focus on them
- Thinking about how you can make your firm more agile and increasing your ability to pivot towards opportunity.
5. Making fee earners accountable for financial outcomes
You may want to consider:
- Encouraging (or mandating) all fee earners to help manage debtor risk and take part in collections
- Setting a regular cycle for fee earners to actively convert work-in-progress to billings – every seven or 14 days, for example
- Ensuring that partners have appropriate performance metrics for billing and debt collection
- Using practice management software to track financial outcomes and individual performance.
6. Optimising your payment terms
You may want to consider:
- Reviewing and updating (where necessary) your payment terms, in order to secure cash flow
- Ensuring that your cost agreements clearly state your terms
- Using your general trust account to secure and hold future fees, such as advance payments and retainers.
7. Improving your billing practices and payment options
You may want to consider:
- Giving clients multiple electronic payment options, including credit card and DEFT, to speed up and streamline collections
- Thinking about removing expensive payment alternatives as a payment option
- If possible, enabling automated invoicing and reminders in your practice management system.
How Macquarie can help
The Macquarie Legal team can help you with personalised support, delivered by industry specialists.
To find out more, contact your Macquarie Relationship Manager: call 1800 442 370, or visit macquarie.com.au/business-banking/legal-industry
Originally published on the 16th June here.