Top Tips for Managing Partner and Finance Directors
In a recent survey IOD members identified the ongoing economic uncertainty as the biggest current concern for UK business. With economic dark clouds gathering on the horizon what should law firm leaders focus on to maintain strong cashflow and profitability.
1. Cash has always been king and remains so
The economy is declining and cash tightening. Lockup is increasing and firms are not as focused on lockup as they should be. Firms should regularly review their time recording procedures, ensure that staff are fully trained and understand how to record time accurately. WIP levels and WIP days need to be reviewed with lawyers given SMART targets to drive down the days WIP remains unbilled. Firms need to actively manage debtors. A robust credit control procedure is key to any successful cashflow initiative and a good credit controller worth his/her weight in gold.
2. Profit Margin
It is predicted that profits for 22/23 in the legal profession will remain static or reduce to 18/19 levels. Payroll costs are likely to increase, with increases of 8/9% predicted or even higher. Law firms should review their charging rates and pricing policies. Law firms should also think about the cost of the work produced for certain clients and critically question the profitability. There is no point in acting for unprofitable clients.
3. Recruitment and Retention
Churn and a high turnover of staff is expensive and unprofitable. Retaining skilled staff is not necessarily about throwing money at lawyers to keep the recruitment consultants at bay. Firms need to build engagement with their staff. Involve staff in business decisions where possible and offer additional responsibilities. A transparent career framework is crucial, so fee earners and support staff know where the goal posts are and what they must achieve to be promoted.
4. Funding
It is inevitable that some firms will not survive the coming economic downturn. However, for those firms that are ahead of the curve, well financed and strategic thinkers there will be opportunities to pick up teams. Such firms will have the funding in place to take advantage of the opportunities that 2023 will present.
5. Succession
Succession of equity partners wishing to retire is a major issue for many law firms. Sixteen percent of small firms surveyed in the recent LexisNexis Bellwether report said that merger was something being actively considered, with succession being a major driver. Robust due diligence in selecting the right merger partner is a key part of any successful merger project. Managing Partners should not underestimate the importance of a good cultural fit when attempting to put two law firms together. As one of my former Senior Partners used to say “act in haste, repent at leisure”