When lawyers give
any thought to working capital management it is usually in the context of cash
flow, and often when there is a problem…
However careful
management of working capital can go beyond cash flow issues and impact your profits significantly…
Just one key area
for discussion in this post…File velocity…
The issue that
causes most concern for law firm managers is ensuring that each fee-earner has
enough client file work…getting people to what I prefer to call a “healthy
backlog”.
They naturally
enough assume that if a person has enough work, there will be appropriate
production, and hence fees…and a proper profit margin will be created over the
cost of production…
Of course they’re
right, as far as it goes…
However what they
often overlook is that some fee earners have more work than they really should
have, and almost always, the average file velocity drops, so that too much working
capital is tied up in those files…
The wider situation can
be masked if the fee-earner is hitting basic targets for work done, and
billings rendered…good results of course, but still too much working capital is tied up.
How does this
impact profit?
At the simplest level
it can mean that the firm pays more in interest on its borrowings.
More importantly
often it is overlooked that distributing the files better would mean improved
file velocity and fees that would not have come in for some time can be billed
(and hopefully paid) in an earlier period for the same outlays, very
significantly boosting profits because these fees are usually derived in the
real profit zone, above break-even.
Cash flow will
certainly be improved when the extra fees are collected, and it highlights that
while profit and cash flow are intrinsically connected, there are various
factors at play, and all need to be managed well.
I trust these
thoughts have been of interest and value to you…
I take the
opportunity below to remind readers of the KMS workshops coming up, and
apologies to those who have already kindly registered, or recently requested
Registration forms.
The Seven Biggest Profit Builders in
Small-Medium Law Firms…
KMS Australian Workshops CPD…
Most Australian
lawyers who are principals in private practice know that the genuine profit
returns for principals are not what they should be for the time, effort and
funds invested…
Sadly the position
has not improved as much as it should have in the last decade or so, despite
the vastly improved technology and marketing tools available…
Far too many firms
appear on paper to have “done OK”, yet seldom ever have the cash available for
principals to fully draw down what they’ve “generated’…
The good news is
that it needn’t be like that at all…
Working closely
with 1,215 small-medium law firms in Australasia in the last twenty-five years
I’ve had the opportunity to observe the major mistakes law firms make
repeatedly, and to develop techniques to address them effectively…
As a result firms that
have applied the appropriate techniques have gone on to be leading practices in
pretty much every suburb, town, region and city…with some growing rapidly to
become national firms, and others achieving previously unheard of levels of
profitability…
In this new series
of workshop across the country I will work with you to examine closely the
seven key areas law firm managers can make a truly huge difference to profit
outcomes from servicing clients truly professionally…
I’ll lead all the
discussions, and there will be ample time for full involvement by all
participants and detailed answers to all your questions…
Who should attend?
CEO’s, CFO’s,
Practice Managers, Managing Principals, Office Managers, Principals, Associates
and any employed lawyer interested in understanding how to make themselves more
valuable to the firm and progress their career…
When and Where?
In Melbourne CBD,
Brisbane CBD and Sydney CBD… as usual, venues to be advised…
See dates for each city below…
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