Transcript PRESENTATION - Peter Scott

How to improve your cash flow
and profitability
- by working smarter, not harder
Who feels like this?
PETER SCOTT CONSULTING
The scope of our seminar today
Using financial analysis to get to grips
with partner underperformance and big
gorillas
Maximising your cash flow
How much more profit do you want to
earn?
Constructing your action plans
PETER SCOTT CONSULTING
Your challenges?
To pay off the bank overdraft
To pay out last year’s profits
Not to have to put in more capital
To pay out retiring partners
To improve PEP by [ ]%
Others?
PETER SCOTT CONSULTING
Make the most of what you
have
Work smarter, not harder
PETER SCOTT CONSULTING
Your partners
Their performance
Their behaviour
PETER SCOTT CONSULTING
“Heavyweight gorilla”
“You can’t
manage me.
I’m a big
biller!”
PETER SCOTT CONSULTING
“Do own thing”
“That’s a great idea…
…for the rest of you”
PETER SCOTT CONSULTING
“Winding down”
“Ahh….only 5 more years to go”
PETER SCOTT CONSULTING
Accountability
“We have no room for those who put
their own personal agenda ahead of the
interests of the clients or the office”
David Maister’s “Predictive package”
PETER SCOTT CONSULTING
Partner accountability
As a partner I fully accept and agree that each partner
must be accountable to every other partner for his or
her actions because our firm will only be able to make
the progress we all want it to make to achieve our full
potential, if each of us, as our part of the bargain as
individual partners, behaves in relation to the firm, its
clients and everyone in the firm, in a manner
consistent with the principles and way in which we
have agreed the firm is to be run, and on the basis
that each partner puts the interests of the firm before
any personal interests or agendas.
PETER SCOTT CONSULTING
Partner accountability
For example and without limiting in any way
my agreement to the above overriding
obligation, I undertake to support in the
fullest possible way:
The implementation of all decisions made by
our partnership
Those mandated with the onerous task of
managing the firm; and
Every other partner in the firm as each
endeavours to fulfil their respective roles in
the firm.
PETER SCOTT CONSULTING
Put the squeeze on your
business
PETER SCOTT CONSULTING
Avoid Financial Information
Overload
KEEP IT SIMPLE
PETER SCOTT CONSULTING
Cash is king – effective
cash management
Cash flow – the process
Instructions
W.I.P
Cash
Debtors
PETER SCOTT CONSULTING
Are you a squirrel?
PETER SCOTT CONSULTING
How much is your ‘lock-up’?
“lock-up” (work done not paid for)
= WIP at selling value
+ Unbilled disbursements
+ Unpaid bills (net of VAT)
“Excess lock-up”
= WIP over 60 days
+ Debtors over 30 days
PETER SCOTT CONSULTING
Cash Flow – finding solutions
Need a cash generation plan to focus on
(in order of priority):
Partner accountability
How practice is to be financed
Forward cash position goals
Billing targets by person/group
Collection targets by person/group
PETER SCOTT CONSULTING
Cash management
Partners’ capital should not be for
subsidising financial under
performance
PETER SCOTT CONSULTING
Financing of practice
Your working capital requirement?
How is it funded?
Partners’ fixed capital
Profit distribution policy
Current account balances
PETER SCOTT CONSULTING
Taking instructions/risk
management




You are providing clients with credit, but
you are not being paid to take credit risk
Terms of business
Money on account
Disbursements
PETER SCOTT CONSULTING
Work in Progress
Recorded time - daily
Aged WIP
Review all matters
- with 60+ days WIP
- where no bills for 60+ days
Billing targets for each person/group
PETER SCOTT CONSULTING
Debtors
Cash collection targets
Review all unpaid bills over 60 days
Use your credit control system
Link cash collection to distributions of
profit
PETER SCOTT CONSULTING
Benchmarks (= our new lockup targets)
WIP – no more than 45 days average
Debtors – no more than 45 days
average
Lock-up – 90 days maximum
How much working capital would a one
month reduction in your lock-up
release?
PETER SCOTT CONSULTING
Cash Management
Set minimum acceptable balance
- £100k headroom to avoid o/d
Simplify cash flow
- all figures to be gross (inc VAT etc)
Each month calculate cash needed to
cover all outgoings for next 3 months
(including partners’ drawings and
distributions)
Calculate and broadcast weekly cash
collection targets
PETER SCOTT CONSULTING
Cash Management (2)
Report weekly on cash collection
Plan billing targets to generate cash
to pay major outgoings (November
bills to pay January tax)
Recognise consequences of
deviations
+/- £25k per week = +/- £325 per
quarter
Payments to partners depend on
cash collection
PETER SCOTT CONSULTING
Cash collection targets (1)
PETER SCOTT CONSULTING
Cash collection targets (2)
PETER SCOTT CONSULTING
Effect of £25k per week variance
500
400
300
200
100
0
-100
-200
-300
November
December
January
Cash Collection +£25k per week
Cash Collection on Target
Cash Collection -£25k per week
PETER SCOTT CONSULTING
February
How to use your finance team to
maximise cash management
Is your team performing?
PETER SCOTT CONSULTING
Cash management
A final thought –
Leave banking to bankers
PETER SCOTT CONSULTING
Achieving maximum
profitability – practical steps to
make a real difference
Flabby law firms are failing
To drive up revenue
To drive down costs
PETER SCOTT CONSULTING
Margins are being squeezed
PETER SCOTT CONSULTING
Maximising profitability
Work smarter – not harder
How much more profit are you going to
make next year?
PETER SCOTT CONSULTING
Analyse your business
PETER SCOTT CONSULTING
Profitability factors
Work types
Leverage
Clients
Pricing
Chargeable hours
Recovery rate
Major overheads
PETER SCOTT CONSULTING
Overheads
Cost of:
-
people
premises
PI
IT
ZBB
PETER SCOTT CONSULTING
Profitability – finding solutions
Focus on :
building the top line
PETER SCOTT CONSULTING
Work types
Each work type as a % of overall
turnover?
Net profit per equity partner for each
work type/group?
PETER SCOTT CONSULTING
Leverage
For each work type /group
Net profit per equity partner?
Number of fee earners (including
partners)?
Age/qualification of each fee earner
(including partners)?
Delegation? PETER SCOTT CONSULTING
Clients
% of turnover represented by top
10% / 20% of clients (by billing value)?
Ditto for bottom 10% / 20%?
Net profit derived from each of above
categories as a % of total?
PETER SCOTT CONSULTING
Who is never guilty of the
‘Triple Whammies’?
The TRIPLE WHAMMIES Under pricing
Under recording
Under recovering
PETER SCOTT CONSULTING
Efficiency
Efficiency = Utilisation x Recovery
Utilisation = chargeable hours
recorded divided by standard working
hours (220 days x 7 hours = 1540)
Recovery = % of recorded time billed
at selling price
PETER SCOTT CONSULTING
PRICING
PETER SCOTT CONSULTING
Pricing
For each person/work type/group/client
Headline rates
Local comparables/competitiveness
Recovered rates
Latest rate changes
Value billing arrangements
Fixed fee work
PETER SCOTT CONSULTING
If…
You have 30 fee earners
Each averaging 800 hours p.a
Increase rates by £10 p.h and fully
recover
How much more revenue will you
generate
in a full year?
PETER SCOTT CONSULTING
£10 p.h rate increase across
the board will produce…
£240K additional revenue
PETER SCOTT CONSULTING
RECORDING
CHARGEABLE TIME
PETER SCOTT CONSULTING
‘Why should I fully record all
my chargeable time?’
PETER SCOTT CONSULTING
Because you’re worth it!
PETER SCOTT CONSULTING
Worth?
‘Having a specified value’
The Oxford Paperback Dictionary
PETER SCOTT CONSULTING
Value to whom?
Clients
PETER SCOTT CONSULTING
Are you adding value to your
clients?
If so, you have a value
PETER SCOTT CONSULTING
How can you measure your
worth?
PETER SCOTT CONSULTING
What do you have to sell?
PETER SCOTT CONSULTING
Your time
PETER SCOTT CONSULTING
Why is time not recorded?
PETER SCOTT CONSULTING
‘Because I am not worth it!’
PETER SCOTT CONSULTING
‘The job will not justify all my
time!’
PETER SCOTT CONSULTING
‘I cannot be seen to have big
write – offs’
PETER SCOTT CONSULTING
I don’t have enough time to
time record!
PETER SCOTT CONSULTING
Time is not relevant to our part
of
the firm’s business
PETER SCOTT CONSULTING
Recording chargeable time is
relevant to EVERY part of a
firm’s business
PETER SCOTT CONSULTING
Why is recording chargeable
time so important?
PETER SCOTT CONSULTING
1. Meeting your targets
‘I can meet my billing
target
but without having to work
any harder’
How?
PETER SCOTT CONSULTING
An extra 30 minutes recorded
per day?
30 minutes X 220 working days pa
= 110 hours
110 hours at
£150 ph = £16500
£200 ph = £22000
£250 ph = £27500
PETER SCOTT CONSULTING
2. Budgeting for revenue
Fee earners
X
Hours
X
Hourly rate
PETER SCOTT CONSULTING
3. Are we ‘on budget’?
Recording chargeable time
enables us to compare
performance with budget
PETER SCOTT CONSULTING
4. How to estimate a fee?
‘How much will this cost me?’
PETER SCOTT CONSULTING
5. Are we working profitably?
How do we know we are
profitable if we do not know
how much our work is
costing the firm to do?
PETER SCOTT CONSULTING
6. The Firm’s financial health
Utilization
Recovery
Efficiency
PETER SCOTT CONSULTING
How easy is it for you to record
time?
Do you need training?
PETER SCOTT CONSULTING
Recorded chargeable hours
Methods of recording time
Units of recorded time
Frequency of reporting
Available time
Recorded chargeable hours by
person/group/firm
Set Targets
PETER SCOTT CONSULTING
Benchmarks (= our new
targets)
Lawyer target hours: 1430 (90%
utilisation, 6.5hours x 220 days)
- your current actual?
Partner target hours: 2000 in total
- chargeable in range 1000 – 1430
depending on roles / responsibilities
PETER SCOTT CONSULTING
Non - chargeable time
Set maximum allowances depending on
roles / responsibilities
Stop use of “unspecified” and “other”
codes
Review excessive non – chargeable time
PETER SCOTT CONSULTING
If…
All fee earners record and recover an
extra 15 minutes per day, by how much
would your annual profits increase?
PETER SCOTT CONSULTING
An extra 15 minutes recorded
daily will produce…
220 days x 30 fee earners = 6600
6600 man days x 15 mins = 1650 hrs
1650 hrs x £150 if fully recovered
= £247.5K additional revenue
PETER SCOTT CONSULTING
Recovery rate
PETER SCOTT CONSULTING
Recovery rate
Every 1% on your recovery rate = ?
PETER SCOTT CONSULTING
Write off policy
How much do you write off each year?
Introduce a write off policy eg:
- all time to be w/o more than £500 or
5% of recorded time whichever is the
higher has to be approved by managing
partner
PETER SCOTT CONSULTING
Benchmarks (= our new
targets)
Recover 95%+ average of selling price
of wip
- your current average?
PETER SCOTT CONSULTING
If…
you halve the amount you write off, by
how much will your annual profits
increase?
PETER SCOTT CONSULTING
By reducing …
Under-pricing
Under-recording
Under- recovering
how much more profit would you
make?
PETER SCOTT CONSULTING
Your action plan?
Cash management?
Profitability?
Underperformers / big
gorillas?
PETER SCOTT CONSULTING
What are you going to
take away from today
and do something about?