On a weekly basis we hear horror stories of attorneys who failed to bill clients correctly for recoverable expenses. If this happens once or twice, it might not have a meaningful impact. But if it happens regularly, the knock- on effect on cashflow could cause an otherwise sound business to fail.
We’ve put together some tips on how to implement an effective financial management system. Not only will this help you avoid financial pitfalls, but you will be better equipped to re-invest your capital.
Effective Accounting – Check Your Numbers
One of the most crucial steps for any business is to monitor your daily, weekly and monthly financial transactions. There are plenty of legal billing software programmes available for this. This will give you a vital oversight into where improvements can be made, such as reduction of expenses and the increase of incoming capital. Keeping record of all your invoices is critical.
Buffer Yourself with Liquid Cash
Liquid cash is a very important commodity to have for any business and you will want to always have cash on hand. The reason for this is that you will more than likely experience unforeseen costs and expenses that need to be settled in order to avoid a disruption in your business. By buffering yourself with liquid capital, you will avoid having to tap into your credit overdraft facilities.
Avoid Credit Overdraft and Loans
Making use of overdraft facilities and loan options should only be a last resort. Although you might resolve your short term financial issues, you will be inviting monthly repayments that have interest attached. This will cause a financial stress to the business and defaulting on payments can harm your credit rating. Only use this option if you are confident that repayment will not be an issue.
Pay Suppliers on Time
One of the biggest assets to any business is the relationship with suppliers. This relationship needs to be nurtured and one way to do that is to ensure that you pay them promptly whenever services are rendered or stock is delivered. The reason for this is that you will not only benefit from reduced prices in the future, but your supplier may even opt to opening a line of credit with your business – a privilege you will find invaluable in the future.
Paying your VAT on time is important to avoid any tax-related penalties that may arise. Prioritise the setting aside of capital in order to pay off your VAT.
Cut Internal Costs
Evaluate your day to day expenses of running your business and reduce your non-essential costs. An example of this could be by switching from premium stationary goods to standard materials which will open up the availability of additional capital to be used elsewhere.
Pay Creditors Strategically
If you have established lines of credit with suppliers and other affiliated business partners, you can carefully choose which to pay off first and which payments can be halted for a period. You will want to avoid paying off all your creditors at once as you could run into debt.
Third Party Cost Consultants
If you have capital to spare, you might want to outsource your financial costing and auditing of your accounts with a legal cost consultant. Known primarily for working within the legal industry, legal cost consultants specialise in financial management techniques and can prove to be a positive return on your investment.
Improving your sales and the way you service your clients will put cash straight onto the bottom line. If you’re not a natural salesperson and you don’t have the luxury of employing a business development manager this can be daunting, but remember that a happy client is a client who’ll be willing to refer business to you. More often than not, clients just need a little prompt. So pick up the phone and ask your top clients if they’d be willing to recommend you. Or put on a drinks party or reception under the guise of it being a networking event where your clients can meet each other.