Menzies partner Peter Noyce outlines the proactive steps law firms can take this year.
Some new year resolutions are made to be broken, but managing your business cashflow and personal tax planning situation shouldn’t be condemned to the attic like those exercise bike or musical instrument Christmas presents.
Here are some proactive steps you and your business can take in 2017.
Managing your business cashflow
Practices will be searching (or perhaps even borrowing) to pay balancing tax payments at 31 January 2017 on (generally) improved results in the basis period 2015/2016 and with increased payments on account adding to the pain. So the question we start with is why don’t you have the cash already available for you to be making your own tax payments?
Is it perhaps because other people still have money you are owed? If this is the case then it’s time to focus on the following:
Improve your credit control
Ensure your credit control department is adequately resourced, empowered and supported by all fee-earners. Monitor your collection procedures to speed up collection of fees and thereby reduce the potential impact of bad debts. Remember (your) cash is king!
Work in progress
Ensure all fee-earners are fully recording their time and not making billing decisions when posting time. Agree in advance with your clients to interim bill and always bill at the height of the client’s satisfaction, at the completion of a good job. You are more likely to be able to bill your full costs and you will collect your cash quicker. Fee-earners should be regularly reviewing the WIP on their portfolios for billing opportunities and looking to hit billing and WIP day targets. If you do not bill it, you do not get paid.
Monitor your combined WIP and debtor exposure to clients in sectors that are particularly struggling in this present economic environment. Although it’s impossible to predict the future, being prepared for different outcomes and situations can make your exposure that bit easier to manage.
Set limits for exception reporting where combined WIP and debtors on individual clients is too high.
Communicate with your clients
This may seem obvious to some, but regularly communicate with your clients is really important to ensure you (and they) are kept fully informed of all matters and aspects of their cases and assignments, whilst ensuring agreements to any additional fees before they are incurred.
Monitor your expenditure
Keep close control on expenditure and consider where savings could be made. Carefully consider any capital expenditure that is not vital. Review and negotiate existing supplier contracts and where possible look for efficiency savings that won’t impact on quality.
Returning to tax payments
As many firms continue to find the present economic climate challenging, it is worth forecasting likely results during the basis period 2016/2017 as payments on account to HM Revenue & Customs may be able to be reduced or payment plans negotiated. This can be a useful cashflow saving appreciated by individuals and the business.
It may not be the easiest of discussions to have, but addressing the sustainability of the level of partners’ drawings may become more necessary if the funds are not there. This can often act as an encouragement to improve lock-up control.
For many, the above will be common sense but for others these items could be a great opportunity to ensure your finances flourish in 2017. So this new year make sure your business and tax planning resolutions do not come down with the decorations.
Peter Noyce is a partner and legal specialist at accountancy firm Menzies LLP
Please note: this is only a guide and is not intended as advice. No responsibility can be accepted by Menzies LLP for any loss from acting or refraining from acting as a result of any material in this blog.