Looking at the questions the Dragons fire at applicants in the hit TV show Dragons Den, it’s clear that whatever your ambition, whatever your business project, you need to understand the mechanics of your business before anything else – whether you want investment or simply want your business to succeed.
Time and again the same questions are asked by the Dragons to those looking for investment. And time and again entrepreneurs and business owners come up short when it comes to the numbers.
of businesses don’t know their key numbers
It may or may not surprise you to know that 70% of businesses don’t know their key numbers – P&L, KPIs, cashflow projections, gross profit, net profit, wage bill, etc. We also know that many law firms tend to work their numbers (e.g. fees in and fees out) out manually on spreadsheets. Incredible really when there are so many tools available to make that part of a lawyer’s life a hell of a lot easier. And would make your pitch to Peter and Deborah a little less tense!
We’ve all been there. We’ve all sat in front of the telly with bated breath waiting to hear if the person under the spotlight can confidently talk about (DUN, DUN DUN) THE NUMBERS!! You’ve probably cringed as much as we have when you hear applicants stumble and struggle over the financials of their business.
Picture yourself in a room with the Dragons. Would you be able to hold your own, get the numbers right and get a much firmer footing to secure an investment in your law firm?
Now picture yourself in a room with your partners. Imagine how much easier and faster the decision making process would be if you knew your numbers inside and out prior to that meeting.
Let’s start by looking at all the pitfalls of not knowing your law firms’ numbers…
Managing finances can be a challenge. Not having the experience or the time to dedicate to your firms’ finances means that many law firm owners don’t feel in control of them.
To be blunt, not knowing your firms’ numbers could result in the failure of your business. Finance is really the overall health of your law firm – is your law firm getting its five a day or is there a giant heart attack coming!
Now, let’s look at all the benefits of having support to manage and know your numbers inside and out…
Cashroom clients receive many benefits using their Management Accounts service. Budgets, cashflow projections and monthly management accounts are crucial to knowing where you are and predicting where you are going.
Tracking Profit & Loss
One of the fundamentals for any business owner – are you making money from your labour? There are of course businesses that exist as not for profit but for most business owners the whole point of the firm is to make a living. Do you know whether you are profitable on a month-to-month basis? This is not merely as simple as having money in the bank to pay the bills, employee wages, and the myriad other costs of business and your system generated reports alone may not be enough for you to determine how profitable the business is. A good practice management system, like Denovo’s CaseLoad, allied with professional assistance from a Cashroom accountant can help you to track profitability on a monthly basis, which neatly leads to…
Identifying Business Trends
Do this regularly! You will never have a proper handle on your finances if you are only looking at them once a year for compliance purposes. Your business might not be at the stage of needing a full-time experience finance professional, but you can set up a monthly meeting with Cashroom’s Management Accounts team to give you that value add and experienced insight into your finances. Do you know how well each work type is doing? Do you have any seasonality within your business? Do you know if your business is growing, treading water or contracting? Regular and appropriate management information can assist you with understanding your business in additional detail.
You can use regular financial analysis and data to view how each individual at your firm is contributing to the success (or otherwise) of your business.
You can create financial targets for billing and utilisation amongst many meaningful metrics and targets to performance manage your employees. If you are trying to grow your business, visible and comprehensible management information will let you know when it is time to invest your hard-earned cash into people, processes or workstreams.
There will always be business issues that need to be addressed today, but when it comes to your finances, you also need to be able to plan. Will there be a shortage of cash coming down the track from poor credit control, a significant VAT or PAYE liability, an income or corporate tax liability, or from a downturn in business. If you are not planning financially then it is easy to run into difficulty very quickly. The most successful firms always have an eye on the future.
Amongst many things businesses have become more aware of from the Covid-19 pandemic, one key issue has been access to finance. Whether that has been freely available government support or additional support from funding providers there is generally a need to demonstrate solid underlying financial performance to even agree a bank overdraft. If the firm is looking for external investment or loan funding to expand or carry out particular projects, it is vital to have up to date financial information. No Dragon would be remotely interested in investing in a business that was unable to demonstrate its current financial performance, let alone the expectations for the future. If you do nothing else, please consider these top tips and ask yourself if you’re happy that you have the necessary financial information to run your firm successfully.
WHAT WE ARE UP TO
Latest news & events
In order to future-proof law firms, it is important to address the top five difficulties associated with adopting new technology.As technology advances at a rapid pace, law firms across the UK recognise the need…