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Managing working capital

Managing working capital. Peter Scott Peter Scott Consulting. Who feels like this?. Put the squeeze on your business. Your challenges?. To reduce the overdraft? To pay out last year’s profits? To avoid putting in more capital? To pay out retiring partners?

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Managing working capital

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  1. Managing working capital Peter Scott Peter Scott Consulting

  2. Who feels like this? PETER SCOTT CONSULTING

  3. Put the squeeze on your business PETER SCOTT CONSULTING

  4. Your challenges? • To reduce the overdraft? • To pay out last year’s profits? • To avoid putting in more capital? • To pay out retiring partners? • To manage the risks created by WIP and debtors? • Others? PETER SCOTT CONSULTING

  5. Whose job should it be? Managing the financial well-being of a law firm is not so much about figures, but all to do with managing the people in the business to get the best out of them. PETER SCOTT CONSULTING

  6. How to use your finance team to maximise cash management • Who makes up your finance team? • Is your team performing? PETER SCOTT CONSULTING

  7. Your Finance Team Centralisation Vs Delegation PETER SCOTT CONSULTING

  8. Your Finance Team? • Your FD alone? • Your FD + Managing Partner? • Your FD + Managing Partner + partners + other fee earners? OR • A ‘task force’? PETER SCOTT CONSULTING

  9. Partners • A need to take partners with you • Partners need to know what is required of them • Obtain partner buy-in to ‘Partner Accountability’ PETER SCOTT CONSULTING

  10. Your partners • Their performance • Their behaviour PETER SCOTT CONSULTING

  11. “Heavyweight gorilla” “You can’t manage me.I’m a big biller!” PETER SCOTT CONSULTING

  12. “Do own thing” “That’s a great idea… …for the rest of you” PETER SCOTT CONSULTING

  13. “Winding down” “Ahh….only 5 more years to go” PETER SCOTT CONSULTING

  14. Partner accountability “We have no room for those who put their own personal agenda ahead of the interests of the clients or the office” David Maister’s “Predictive package” PETER SCOTT CONSULTING

  15. A partner accountability statement As a partner I fully accept and agree that each partner must be accountable to every other partner for his or her actions because our firm will only be able to make the progress we all want it to make to achieve our full potential, if each of us, as our part of the bargain as individual partners, behaves in relation to the firm, its clients and everyone in the firm, in a manner consistent with the principles and way in which we have agreed the firm is to be run, and on the basis that each partner puts the interests of the firm before any personal interests or agendas. PETER SCOTT CONSULTING

  16. A partner accountability statement For example and without limiting in any way my agreement to the above overriding obligation, I undertake to support in the fullest possible way: • The implementation of all decisions made by our partnership • Those mandated with the onerous task of managing the firm; and • Every other partner in the firm as each endeavours to fulfil their respective roles in the firm. PETER SCOTT CONSULTING

  17. Use cash management as a catalyst for change…. • Are all your partners prepared to be managed? • Who really runs your firm? PETER SCOTT CONSULTING

  18. Make the most of what you have Work smarter, not harder PETER SCOTT CONSULTING

  19. Avoid Financial Information Overload KEEP IT SIMPLE PETER SCOTT CONSULTING

  20. Analyse your business PETER SCOTT CONSULTING

  21. Are you a squirrel? PETER SCOTT CONSULTING

  22. Cash flow – the process Instructions W.I.P Cash Debtors PETER SCOTT CONSULTING

  23. How much is your ‘lock-up’? “lock-up”(work done not paid for) Work in progress + Unbilled disbursements + Unpaid bills PETER SCOTT CONSULTING

  24. Financing the practice • Your working capital requirement? • Partners’ capital should not be for subsidising financial underperformance PETER SCOTT CONSULTING

  25. How is it funded? • Your debt / equity ratio? • Fixed capital? • Current account balances? • Do you have a profit distribution policy? PETER SCOTT CONSULTING

  26. Cash generation • Set minimum acceptable balance - eg £100k headroom to avoid o/d • Simplify cash flow - all figures to be gross (inc VAT etc) • Each month calculate cash needed to cover all outgoings for next 3 months (including partners’ drawings and distributions) • Calculate and broadcast weekly cash collection targets PETER SCOTT CONSULTING

  27. Cash generation (2) • Report weekly on cash collection • Plan billing targets to generate cash to pay major outgoings (November bills to pay January tax) • Recognise consequences of deviations +/- £25k per week = +/- £325 per quarter • Payments to partners to depend on cash collection PETER SCOTT CONSULTING

  28. Cash collection targets (1) PETER SCOTT CONSULTING

  29. Cash collection targets (2) PETER SCOTT CONSULTING

  30. Effect of £25k per week variance PETER SCOTT CONSULTING

  31. Cash management A final thought – Leave banking to bankers PETER SCOTT CONSULTING

  32. What are you going to take away from today and do something about?

  33. Any questions?

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