Promotional feature
Email your opinions to
editorial@barkerbrooks.co.uk
Profi t is an irrelevance, cash fl ow is what matters
Clearly profi t is of some signifi cance, but cash fl ow is now paramount, says David Bott of Bott & Co
of money, will struggle. Not many fi rms go into administration for lack of profi t, but most go in for lack of cash fl ow. As the slow crawl out of the recession continues, it is
L
imperative that debts are collected and a tight rein is placed on recovery of WIP. If you think that this is an esoteric and theoretical standpoint
then look at the example of Manches. It appears that Manches was in discussions to merge with Penningtons but at some point they hit cash fl ow issues. These issues were so severe that Manches went into administration and the assets were then sold to Penningtons. The full reasons for the administration may never be fully known but the main reasons appear to be:
1. HM Revenue & Customs (HMRC) issuing a notice of action after the fi rm had not paid its tax bill in full.
2. The fi rm expecting to exceed its overdraft facility. 3. PII becoming due in October.
The above in part, or whole, led to Penningtons paying £500,000 for the business. If Manches was a personal injury, crime, conveyancing or family
legal aid fi rm, we would probably not be batting an eyelid, as we all know that the costs in these areas have been cut to the point where the economics are borderline. Manches were mid-sized and it turns out mid-sized is no magic
wand in the face of cold hard economics. The facts are that rent, PII, the cost of the Practicing Certifi cate,
heating, travel, in fact almost all expenditure is going up, whereas what lawyers can charge (and this does appear to be across the board) is going down. Manches with all of their reputation and good name were
powerless as it appears that they simply ran out of money. And I don’t think that Manches are the only ones to be in (or about to be) in this boat.
18 /Claims Magazine/Issue 11 Fundamentally the business of running a law fi rm is about
turning work in progress (WIP) into capital. The joint administrator’s analysis of Manches' remaining WIP
stated that a signifi cant proportion was over 120 days old and therefore potentially diffi cult to recover. So what lessons do we learn? I suggest the lessons are:
1. Keep a reign on cash fl ow. 2. Explore all the diff erent possibilities in turning WIP into capital.
You do not have to be in distress to want to turn WIP into capital, as you should have been doing it all along. ●
awyers are no diff erent to any other business and there is a basic law of cash fl ow that says that any business that does not have a fi rm grip on the spending of and the collection
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60