“A cash flow plan helps [you know] what your upcoming expenses (outgoings) are going to be but also importantly when they need to be paid. It will also give you some element of reassurance as to when your fees should be coming in, so you know if you have enough money to pay for things, not only your expenses, but yourself too,” she said at the time.

Now, as the nation starts to unwind its social distancing restrictions, Ms Letts – who is the director of Jenny Letts Valuations and Forensics – said that boutique firms, which tend to focus on specific areas of law, will have suffered economic hits to varying degrees, and as such, their cash flow plans moving forward will be different.

“Being able to determine (or as accurately estimate as possible) what your billings and your cash receipts will be over the next few months will be crucial to knowing what workload will look like moving forward for staffing requirements but also for funding requirements for expenses and even marketing,” she said.

“Whilst billings and workflow are important, cash is king, boutique firms will need to know their recoverability percentages, this may be different in a post-pandemic economy. Clients may be slower to pay and they may also be more reluctant to pay.

“I believe it will also be important to know and understand your audience, what is affecting them, what do they need, what is their ability to pay fees etc.”

Steps to be taken

For those legal practices that may be struggling, Ms Letts suggested speaking with clients to better understand what they are going through so as to deduce what valuable services may be offered “to give them the most bang for buck”.

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“I would also be reviewing your onboarding processes, is there a smoother system that you can implement for both you and your client, is there some technology that can be utilised, such as being able to sign retainer agreements on phones rather than having to print and scan,” she said.

“Also, now may be a good time to review your billing processes, knowing that cash is king, would it be more beneficial to both your clients and yourself to bill more regularly. Additionally, is there a more simplified way for your clients to pay, we use Stripe software so that clients can pay by credit card upon receiving our fee.”

It is also necessary, Ms Letts continued, for boutiques to consider the importance of forward cash flow predictions.

“Forward cash flows show when you anticipate funds hitting the bank account and when your payments are due. My advice would be to build one for yourself (or have your accountant assist), keep it simple at the beginning, refer to it every week, update it for your anticipated fees being received and knowing when you have to make payments,” she said.

“At the moment, the government has provided some stimulus packages, majority of us will be utilising the cash flow boost and the Jobkeeper programs, whilst these assist with payments, make sure you don’t become reliant upon them moving forward.

“If you have the ability, use the methodology from Profit First and The Barefoot Investor, open up a couple more bank accounts, one for holding all your tax and superannuation obligations and another for working capital (future expenditure). When you receive money each week, put some into each account to separate it from your general trading account.”

Lessons about cash flow from the pandemic

When boutique lawyers reflect on the pandemic, they should remember, Ms Letts mused, that “growth comes through discomfort”.

“I valued a lot of businesses during the global financial crisis, saw a lot implode and observed that it was the ones that had cash reserves, good billing policies and tight expenses that managed to survive and thrive afterwards,” she recounted.

“When times are tough, a good place to start is to take stock of what outgoings you have, both in terms of expenses but also repayments (tax payment plans, loan payments, credit card borrowings). Based on reduced income, are there any expenses or repayments that can be reduced or renegotiated.

“In respect of internal systems and processes, are there more efficient or simple ways to undertake processes, is there tech that can be utilised to reduce time costs. Also, do you need to review any policies and procedures? Are you on top of your financial and tax reporting obligations, what figures do you need to review regularly to feel on top of the business (i.e. billings, cash receipts, bank balance, accounts receivable).”

Final guidance

Looking ahead Ms Letts reminded boutiques that ensuring one’s personal finances will be just as critical as acknowledging the business needs.

“It may also be a good time to not only review your will but also any business continuity plans, such as documenting any agreements that may be in place such as partnership agreements or buy-sell agreements. If you are sole principal/director you may wish to look at a corporate power of attorney,” she said.

“Lastly, if you are looking at building any of your intellectual property into assets or products such as online course content, online precedents or systems technology that may be specific to your business, it might be an idea to discuss protection of that IP and down the line any potential determination of licensing or royalty fees.”

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