Cash is king
For small law firms and boutiques, handling cash flow is a key challenge that must be carefully managed, writes Bruce Coombes.
Cash flow is often referred to as the lifeblood of a business. Not having cash when you need it can cause a number of significant problems and impact your firm’s profitability.
Cash flow is not only important in managing expenses, including employee costs, but also has reputational impact: paying your invoices late can lead to losing face with creditors. Steady cash flow also potentially allows you to finance upwards shifts in demand for your service, impacting your overall profitability and growth potential.
Below are three tips that can help you maintain a steady cash flow in your business.
1. Know what and where you are spending
As a business grows and develops, some expenses can be overlooked and stay in the system for no good reason. Perhaps it’s an unused phone line, a subscription that is no longer needed or software user accounts for staff who are no longer with the business.
This wastage can be eliminated by going through your business expenses with a fine-toothed comb and cancelling anything you don’t need. Any dead weight expenses that are eliminated will mean an increase in your net cash flow.
2. Focus on repeat business
Getting new business can often appear to be the ultimate goal for a business. However, achieving repeat business from existing clients often achieves a similar return, but at a far lower cost. This is because repeat business doesn’t typically take the same degree of investment into developing trust and educating on the benefits of your offering.
Repeat business also provides the benefit of knowing what to expect from your clients as you’ve already dealt with them. Clients who you know will pay on time and not cause a fuss at the end of the month can make a huge difference to your cash flow situation, and they are the ones you should focus on keeping happy.
3. Help your clients pay on time
Cash flow problems will often come about because clients are not able or willing to pay their invoices on time – a dreaded situation for any business owner. In fact, weeks spent waiting for payment, trying to contact debtors and chasing instalments can soon become worth more than the initial invoice.
The time value of money also means that any money owed becomes less valuable the longer it remains with the client and not your firm. All of this could add up to thousands of dollars if spread across a number of different client accounts.
Some clients may simply not be able to afford a lump sum payment and may appreciate alternative repayment arrangements. Your firm could offer a monthly repayment schedule. Alternatively, if you prefer to receive the lump sum payment you’re owed, while giving your clients a monthly repayment option, Professional Fee Funding is a service you might consider.
Bruce Coombes is the founder and managing director of QuickFee