Legal Futures Associate NatWest [1] looks at the challenges cash flow presents to law firms
In today’s competitive environment, there must be increased emphasis on cash generation and how it finances your firm’s strategic ambition in addition to simply supporting the day-to-day needs of the cash book.
We understand that cash flow management continues to be one of the main pressures on businesses today and the legal sector is no different. Indeed law firms have the greater challenge of converting work in progress and debtors into cash whilst keeping discounts to a minimum.
Talking with your bank enables you to manage their expectations and discuss any additional funding or support. Banks are a good source of help for guidance when reviewing cash flow forecasting and business plans.
If you have detailed and strong systems and a business strategy, it will allow you to act on warning signs before they become a problem and is also vitally important to demonstrate the strength of your firm to your bank when seeking financial assistance and how you can differentiate yourself from other legal practices. The legal sector is increasingly competitive.
At NatWest our criteria for lending is supporting commercially viable firms that have strong business plans, quality management teams and a clear understanding of their market. Key areas of focus include key performance indicators, annual budgets, cash flow forecasts, projected profit and loss and balance sheets, aged debtors and creditors, levels of work in progress and unpaid disbursements, the split of work (which helps to assess if the firm is too reliant on one area of work or one particular client), and updated partner profiles.
Remaining profitable is a high priority for legal firms and the experience of the recession has shown many firms the importance of taking a more proactive role in meeting these issues head on. Firms should ensure they are investing in their future with a clear focus on staff, structure and client relationships but don’t forget your immediate needs around cash flow.
By working closely with your bank you can get the right guidance early to achieve a range of ambitions – whether it is easing your cash flow, day-to-day business management or working towards your future ambition.
It is important that you have access to advisors who understand your firm and can give you the confidence to achieve your ambitions. We provide simple and transparent banking with a relationship team that is trained and experienced in working with the legal sector and really takes the time to understand your firm.
To us your firm is not just a number but a unique business with different needs and requires a depth of understanding and a tailored approach. We understand that it is not enough for banks to offer day-to-day service – firms are demanding a closer working relationship.
One of the ways in which we do this at NatWest is to provide a proactive approach to reviewing your firm. We work to your agenda, not ours, and provide solutions that are simple allowing you to free yourself from routine administration and concentrate on running your firm. Customers expect this – it’s the foundation to a good relationship.
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