Chris Marston, head of professional practices, SME banking at Lloyds Bank, suggests some priorities for improved financial performance.
The Legal Services Act is here, outcomes-focused regulaton (OFR) is in place, and alternative business structures are trading. These sideshows are over and it’s time to concentrate on having a legal business that is profitable and viable on a sustainable basis over the next several years.
With that in mind, I’d like to suggest some practical steps you can take to help enhance the relationship you have with your bank, improve your prospects of obtaining the finance you need to support your business and ultimately help your firm to get into better shape than it is in now.
Review and discuss your financial forecasts
When was the last time you asked for a meeting with your bank manager to discuss your firm’s latest performance figures and financial forecasts? Banks often have to chase their clients for financial information, and customers sometimes consider this intrusive.
Let me offer a different view on this. Good management information can allow you to create a dashboard of all key performance measures in your business and help to keep you on course. Without this, it’s a bit like pilots flying without instruments – it could end in disaster!
Your accountant can help if you don’t have the expertise in the firm to do this yourselves, but the real benefit of good financial information is that you can identify at what your finance needs are going to be an early stage. Banks are more likely to support a business with sound financial information than one relying on instinct.
A review of your financial outcomes and forecasts may also open up some ideas for improvement. For example:
- Do your invoices ask for payment in 30 days? Why not 14 days, seven days or even by return?
- Could you get paid quicker by accepting credit card payments?
- Would your clients settle faster if you were to email invoices rather than post them?
- Who chases outstanding bills, and do you allow fee-earners to stall that process?
Finally, do you benchmark your firm’s financial performance against its peers? There’s some excellent data available, not least the Law Society’s LMS Annual Financial Benchmarking Survey, sponsored by Lloyds TSB Commercial. For participants, this is free, and allows firms to compare their own performance against firms of similar size, or geography, or against those doing similar work.
Get better at cross-selling
Most solicitors provide great service to their clients and resolve their legal problems. However, many fail to spot opportunities to do more for those clients - either now or in the future.
Even though it’s generally accepted that a satisfied client is more likely to want to do more business with you, many of our solicitor customers feel more comfortable spending money on marketing activity directed at strangers than they do on working more closely with existing clients.
All too often, fee earners regard the client as belonging to them personally rather than to the firm, and can be reluctant to refer clients to colleagues elsewhere in the firm. Don’t they trust them?
There are some great customer relationship management software packages out there, and using these effectively can help capture client information and key future events and dates, and thereby form the basis for contact programmes.
Clients are impressed when you approach them proactively, and it’s surprising how often a legal need arises at that point or shortly thereafter. This approach works for business clients as well as for individuals.
Of course, people naturally focus on what gets measured, and this means you’ll need to give some thought to your performance management process. If you’re only measuring chargeable hours and recovery, then this could mean that there’s little incentive for people to do what’s ultimately right for the client and for the firm.
For a practical insight into how banks approach this subject, talk to your bank manager. For years, banks have used systems to ensure we do all we can to do more business with existing satisfied customers.
Explore your client account interest policy
The SRA Accounts Rules require you to set an interest policy and communicate it to your clients, but have you made any changes to the model that was in place before the new SRA Handbook?
Many firms have retained the ‘old’ rule; sometimes this is because they believe it is fair and reasonable, but more often because it’s just easier to maintain the status quo.
Should you review the ‘de minimus’ figure, express a rate or even a set of tiered rates? Interest rates are historically low at present, and you might contend that there’s nothing to be gained by making a change. The counter argument is that changing now would bring benefits when rates start to rise again.
Another question: do you run designated accounts? If so, why? Since the requirement for controlled trusts to be kept separate was removed, the only reason for maintaining a designated account is the client’s insistence. Monies held in a general client account present an opportunity to generate an interest income while meeting your obligations to your client under the terms of your interest policy.
It’s likely that your practice management software can make all the calculations for you, but if it won’t, or you would prefer to have bank involvement, we can provide a virtual client record within a general client account that is entirely compliant with the Accounts Rules and which allows you to provide transaction data to your client.