Managing working capital Peter Scott Peter Scott Consulting

Managing working capital

Peter ScottPeter Scott Consulting

PETER SCOTT CONSULTING

Who feels like this?


Put the squeeze on your business


Your challenges?

To reduce the overdraft?To pay out last year’s profits?To avoid putting in more capital?To pay out retiring partners?To manage the risks created by WIP and debtors?Others?


Managing the financial well-being of a law firm is not so much about figures, but all to do with managing the people in the business to get the best out of them.

Whose job should it be?


How to use your finance team to maximise cash management

Who makes up your finance team?

Is your team performing?


Your Finance Team

Centralisation Vs Delegation


Your Finance Team?

Your FD alone?Your FD + Managing Partner?Your FD + Managing Partner + partners + other fee earners?

OR A ‘task force’?


Partners

A need to take partners with you

Partners need to know what is required of them

Obtain partner buy-in to ‘Partner Accountability’


Your partners

Their performance

Their behaviour


“Heavyweight gorilla”

“You can’t manage me.

I’m a big biller!”


“Do own thing”“That’s a great idea… …for the rest of you”


“Winding down”“Ahh….only 5 more years to go”


Partner 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”


A partner accountability statement

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.


A partner accountability statement

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 partnershipThose mandated with the onerous task of managing the firm; andEvery other partner in the firm as each endeavours to fulfil their respective roles in the firm.


Use cash management as a catalyst for change….

Are all your partners prepared to be managed?Who really runs your firm?


Make the most of what you have

Work smarter, not harder


Avoid Financial Information Overload

KEEP IT SIMPLE


Analyse your business


Are you a squirrel?


Instructions W.I.P

Cash Debtors

Cash flow – the process


How much is your ‘lock-up’?

“lock-up” (work done not paid for)

Work in progress + Unbilled disbursements+ Unpaid bills


Financing the practice

Your working capital requirement?

Partners’ capital should not be for subsidising financial underperformance


How is it funded?

Your debt / equity ratio?Fixed capital?Current account balances?Do you have a profit distribution policy?


Cash generationSet minimum acceptable balance

- eg £100k headroom to avoid o/dSimplify 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


Cash generation (2)Report weekly on cash collectionPlan 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 to depend on cash collection


Cash collection targets (1)


Cash collection targets (2)


Effect of £25k per week variance

November December January February-300

-200

-100

0

100

200

300

400

500

Cash Collection +£25k per weekCash Collection on TargetCash Collection -£25k per week


Cash management

A final thought –

Leave banking to bankers

What are you going to take away from today and do something

about?

Any questions?

Documents

Managing working capital Peter Scott Peter Scott Consulting