2. Working capital management
As professional practices are service-based businesses, they essentially sell people’s time. Working capital management is therefore an important aspect for the finance team. This includes regular invoicing to ensure ‘work in progress’ (WIP) is converted into bills, along with tight credit control to ensure timely collection of debtors. Sharing regular reports with the wider team of fee-earners including ’lock-up’ (WIP and debtors), cash collection as well as WIP and debtor provisions, can motivate staff to bill more quickly and to chase clients for payment of fees. Importantly, it makes clear the link between conducting a piece of work, billing for it and collecting the payment.
3. Budgeting and forecasting
This is vital to ensure that day to day payments can be made and that the ongoing cash needs of the firm are met. Reports should be reviewed regularly with forecasts updated for any additional detail obtained throughout the year and reviews performed to assess progress against budgets. Making all staff aware of at least the headline elements of the firm’s budget is key. A good way to do this is to include everyone in setting their own team or individual budgets, looking at anticipated fees and wins and losses.
Sharing financial information throughout your wider team can lead to better understanding of the firm’s strategy and financial stability. In keeping future leaders of your business informed, you can be transparent with incoming partners, so that they are financially aware. We advise our clients to share financial information regularly with partners, senior management and the wider firm (where appropriate). As well as being healthy for the business, it can also be hugely motivational to team members and ensure the firm has a solid foundation going forward.