Get Bullish
Stage Your Own Economic Recovery
By Michael Baker | Nov.20.12 | Daily Dispatch, Law Firm Management, Law Practice Management, Money
It’s been four years since the start of the great recession (or “lesser depression”) and business owners are acknowledging that recovery is going to be a long, slow process. With no springboard in sight, some economists are calling for another dip. Regardless, good business leaders have wisely right-sized and restructured their operations and, by so doing, improved results. Yet uncertainty and apprehension abound.
What can you do to jump-start things in your firm in view of a still uncertain economic environment? Plenty.
Scrutiny Makes a Difference
The old self-help adage goes something like this: Forget about changing others and start with yourself. There are most certainly still some nooks and crannies of your operation that could benefit from close scrutiny. Here are some ideas.
- Conduct regular financial reviews. I am amazed at the number of firms that fail to regularly review financial data. Looking only at the final year-end numbers in February or March of the next year precludes you from taking any meaningful action along the way. Rather, you’re stuck in a reactive mode, responding to a historical year-end statement rather than real-time data. Keeping up with your cash is great, but you need the whole picture to get an accurate view and make decisions. Set a manageable date every month to conduct a detailed review of financials. If you can’t easily generate timely information, find out why and make changes.
- Sharpen your billing and collection skills. Review your invoices and make certain they communicate terms and due dates clearly. On new business, consider alternative strategies to get paid more promptly. One client has become a rock star at collecting. His secret is to quickly send and follow up on invoices. Everyone in the firm knows the system, and one individual owns the process.
- Actively manage expenses. Selling more of what you produce is satisfying and feels like progress, but expenses also have a huge impact. If your net profit (bottom line) is 20 percent of billables, then selling $100 produces a $20 profit. Cutting expenses by $100 increases the profit $100. While you can’t slash your way to prosperity, it is a good place to start.
- Don’t push personnel problems under the rug. According to management consultant Bob Denney of Robert Denney Associates, “It isn’t the people you fire who hurt you. It’s the people you don’t.” No one likes to deal with HR issues, but the unproductive or disruptive $40,000 employee is probably costing $46,000 or more with taxes and benefits. The following question is a valuable assessment tool: Knowing what you know now, would you hire this person again?
- Set fees to make a profit. There appears to be a proliferation of people undercutting the competition and accepting engagements with little or no profit just to stay busy. A wise person once said, “Better to go broke drinking beer and fishing than taking work with no profit.”
Bull by the Horns
Even a cautious CPA would be tempted to say that prospects for economic recovery are much improved over conditions a year ago. Many business owners I talk with are experiencing increased demand for their products and services. When I ask what’s fueling the increase, they explain that their competitors have gone under, which results in a larger potential market.
But I believe something else is at work, and that’s people taking a proactive approach to staging their own recovery. Businesses that have used this period productively will be the first to recover when brighter days arrive.
Michael Baker is Managing Partner at Dent, Baker & Company, LLP, an accounting consultancy based in Birmingham, Alabama. A CPA and Certified Financial Planner, Michael’s practice is concentrated in the area of taxation and general business consulting. He is a member of the American Institute of Certified Public Accountants and the Financial Planning Association. He is also Chairman of the University of Alabama Birmingham Accounting and Finance Advisory Board and the Brock School of Business Dean’s Advisory Board at Samford University.
Illustration ©imagezoo.
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I am amazed that we’re talking about sending invoices promptly as a way to help collections. Yes–it’s critical to send them out within a few days of the end of each month so the client knows what the amount due actually is, and yes, that will speed collections along.
You send invoices promptly to tell clients what you’ve done for them–to update them on the work you’ve done–to communicate with them–and yes, to begin the collection process.
I am appalled when I hear lawyers and legal assistants talk about bills going out with work that happened 60, 90, 120 days ago. No wonder lawyers get sued for failing to communicate with their clients. They can’t even tell their clients what they’ve done that month.
In our firm, timekeeping and billing are on the forefront of everyone’s minds, not just the billing department. We require time to be entered daily, we make every effort to have our bills out by the 5th business day of the next month, and we do not bill for work done in a previous month. If we can’t be bothered to get the time on the current bill, we lose those fees. But that rarely–if ever–happens.
If you can’t be bothered to get at least that much done for your clients, why are you surprised they can’t be bothered to pay you promptly? Ask your clients what the most critical part of their business is; they’ll say getting paid for the work they do. Noble profession or not, this is a business transaction, and you must act the same way you expect your clients to.
Elizabeth B.
I am shocked at the number of firms who handle billing as a bother. One firm I worked with had some attorneys who only billed once a quarter or whenever they felt like it. You are exactly right – the best time to bill someone is right after yuo have completed the work and they remember what you did for them. In anything, professionals need to bill more frequently than monthly.
MB