To a large extent the cash outflows are fixed-either in value or timing or both. Most payments follow a predictable cycle;

• Daily
• Weekly
• Monthly
• Quarterly 
• Annually

For example 

• Payroll and associated costs are monthly 
• VAT is paid quarterly 
• Partner taxation is paid half yearly 
• Bonuses may be paid annually 

It is important to understand that working through the expenses part of the profit and loss account will miss many of the significant payments. For example, VAT does not appear in the profit and loss account, loan repayments and financing are balance sheet transactions. 

We have found over the years that most payments will fall under one of three headings 

Fixed in time & value

These are normally direct debits or standing orders. It’s important to identify these because unless something is done to make a change, the money will leave our bank account. Many of these are also very difficult to negotiate variation to. In the profit and loss account these will include items such as rent, rates, insurance, IT contracts and library subscriptions. 

Fixed time payments

These are subject to variation but largely predictable. These include payroll – salary and at a different time PAYE and national insurance contributions, VAT (predictable based on turnover) and business taxation (predictable based on profits). All of these have clear due dates and the broad scale of the expenditure will be known even if the exact detail is not. For example, the normal value of the payroll will be subject to variation for overtime or bonus payments or sickness. 

Disbursements

have to be paid in accordance with the Solicitors Accounts Rules. They are not predictable but, in most circumstances, they are only payable once the cash is received as part of the inflows. 

 Taken together these three categories of expenditure normally account for well over 90% of the firm’s outgoings. 

In most circumstances it is then possible to do a contingency allowance for the other sundry expenditure.  

In the first instance this should give a sufficient level of accuracy to allow a useful forecast to be prepared. 

If the situation is more difficult, more precision will be needed in estimating the values to ensure that there is sufficient headroom or that the early warning is used to generate evasive action 

 In cash flow forecasting-it should always be easier to estimate the outflows in the inflows 

The post Forecasting Cash Outflows appeared first on Wilkinson Read & Partners.

The era of social distancing is bringing new challenges to effective communication.

I can still recall when first joining the banking sector being put through a training programme regarding ‘telephone etiquette’ as it was referred to then.

This was an entry-level skill set.

To this day many of the basics that I was taught remain invaluable in the business world. This was around tonality, content, listening skills, preparation before the call, taking notes and use of questions in response to questions.

At that point the use of telephone in terms of working with a new client or an existing one was recognised as a specific skill set.

Later in my banking career I was put through another training programme regarding the skill of writing a letter. Again, relatively an entry-level skill but the bulk of those entry-level skills remain exceptionally valued. The content was around the use of language, construction of arguments, framing a call to action and various other well thought through techniques to ensure that my skills in correspondence were appropriate.

At that point using the written word in terms of; working with a new client or an existing one was recognised as two specific skill sets.

As my career developed, I was put through another training programme. This time regarding the skill of presenting. In continuation of the theme I would suggest that these were relatively entry-level methods in terms of how to present in a boardroom. Much of what I was shown I was later able to transpose into making PowerPoint presentations and the need to deliver complex software demonstrations that occurred later in my career.

At that point developing a presentation in terms of; working with a new client or an existing one was recognised as two specific skill sets.

What is interesting to me is that these specific types of training were areas that my employers realised could differentiate our banking offer against the competition. If your bankers were able to handle telephone conversations to a high standard and follow the calls up with well-constructed correspondence it left a positive impression. If your bankers, where appropriate, were then trained to present information either across a desk or within the context of a boardroom to a high standard than that to would leave a positive impression.

If you combined all three skills then you became a ‘Rainmaking’ force.

I suspect that everyone reading this article can immediately ‘buy into’ Rainmaking skills using the spoken word, the written word and the presented word. These are specific business development requirements within the field of professional services which law is.

In this current climate we have a situation where on many occasions there is a brand-new requirement. That requirement is the use of the Webcam.

Currently the virtual meeting is not recognised as a skill set in the same way that voice, text

and face-to-face have been. Yet it is a specific discipline. It is highly likely that over time it will become evident that:

You can win and develop business based on your virtual ability.

Just as:

You can win and develop business based on your telephone approach.

You can win and develop business based on your written word.

You can win and develop business based on your face-to-face performance.

These are 6 basic building blocks to differentiate yourself from other practitioners.

1. Focus on the webcam and not on your colleagues

Eye contact is a vital way to reinforce your point. In a webcam-based meeting this means looking into the camera and not into the faces of other the participants. Looking into a small black circle will feel uncomfortable. For years we have been trained to look at the people when talking to them and the challenge is to have a focus on your camera for the meeting. This is especially while others are talking. This will separate you from the behaviour of other people on the call.

2. Project a stronger voice

Use a louder and firmer than usual voice on a webcam call. As well as projecting your audibility a strong voice conveys authority, confidence and credibility. It is just as true in the virtual world. Even though you may be using a headset and be tempted to speak at your normal volume maintain a slightly higher audibility level almost as if you are in a large conference room.

If you are using a microphone that is desk-based resist the temptation to lean into it and speak at a conversational level. Actually, lean back and project your voice as if speaking over a lectern. This will also separate you from other people on the call.

3. Frame yourself

Look at how you appear through the lens of the webcam. You need to organise the call in a manner where your head, the top of your shoulders and just above waist, should dominate your projection. Look at newscasters, that are sitting behind a desk, to get some idea of what this should look like.

Be mindful of your background as cluttered rooms communicate something and anything that is distracting will pull the attention away from you. Look for a simple plain background as neutral as possible.

4. Be totally engaged

In a boardroom meeting, participants are usually exceptionally aware of what their body language and behaviour may signify. In a webcam call, where you may be muted and perhaps dressed less formally, you may forget that you are on show.

Do not multitask. At any moment you may be asked a question. Even if you are not the speaker ensure that you are fully engaged. Close all screens on your PC and a good habit is to turn your phone facedown throughout the call.

5. Remove all distractions

Train yourself to stay on mute when you are not the person speaking. Only unmute yourself when you are the one speaking. If you mute your microphone it removes any sound that accidentally may be audible from your end of the call.

It is also worth to consider to switch off your webcam when you may be doing something visually distracting such as moving whilst on camera.

6. Using the chat box

The chat window is a key part of the communication in a webcam-based call. It is an opportunity in a virtual meeting to add your ideas, demonstrate that you are fully engaged and also promote your presence in the meeting.

It may be the case that you have been engaged in virtual meetings for many years. It may be that you have only truly engaged in this medium since the pandemic.

It is vital to understand that a Webcam call is not a conference call through a PC screen. It is a different interactive experience requiring you to rethink your communication tactics.

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Nobody can quantify with certainty the exact impact the pandemic will have regarding working with clients. With regards to potential post pandemic behaviour, there appears to be little evidence from buyers to undertake face-to-face meetings with new vendors.

As a business development specialist or as described in-house as the rainmaker, I was brought up on a concept referred to as the 20% rule.

Not that many people will take the risk of trading a stable and proven professional relationship for a 10% discount. Generally, it needs a larger discount to create the environment where most people will be prepared to have the conversation to explore what a new vendor has to offer.

In my field at that time of Banking we would not be able to offer such financial inducements. However, the client or prospect would have some type of expectation of what customer service and front-line interaction a Bank should be able to offer them.

We had to exceed this benchmark by 10% in terms of our skill and knowledge in the expectation that the incumbent Bank would be taking the relationship for granted and be 10% below this benchmark. This would create in the mind of the prospect a 20% gap which would be enough for us to disturb them into becoming our client.

So, taking this concept further we explored the following as we created an on-line questionnaire that searched projected buying’ habits in 2021.

(We thank Barclays Eagle-Lab Tech incubator C4DI for their assistance).

We had 312 respondents.

These were not specifically buyers of legal services and they also represented businesses with an annual turnover of more than £1 million in 2018.

67% of those respondents could not envisage a face-to-face meeting with a brand-new vendor in 2021 based on their COVID-19 opinion up to August 7th 2020.

This insight is from a busy and presumably stressed out business community. The data is also not exhaustive and is a sample of questioning for a larger project around buying services we will be researching in November. However, thinking that the method for buying and selling services will reboot back to the same method prior to the pandemic may not holdup to much scrutiny. So, that response is just a small snapshot of opinion.

What is not a snapshot of opinion is the following. The researcher Dr Phillipa Lally reviewed the concept of habit creation. She published these findings. (This was published by https://www.ucl.ac.uk recognised globally for its research strength).

https://www.ucl.ac.uk/news/2009/aug/how-long-does-it-take-form-habit

Her research on the creation of habits demonstrated, through a series of tests, that on average sixty-six days was the period required for the creation of a new one. Creation of a new habit was specifically engaging with a new behaviour and calculating the tipping point of where that new behaviour became automatic.

Using that measurement, it is reasonable to suggest that a new communication habit has formed. This new communication habit does not work at all well with offers of service. Service selection is rooted in the concept that ‘people buy people’ and it is hard to do that through the prism of a laptop screen. The webcam is now the filter of your offer and professional use of the webcam is not just about how to employ the technology.

In its most simple form, many professionals see this essentially as a conference call with a head shot.

According to best practice from South Africa, Hong Kong and Australia there is a matrix of skills and proficiency around webcam use. The great news is that it is something that can be learnt and developed.

In fact, for those of us that may lack the charisma and projection in a face-to-face meeting, that so many experienced and successful rainmakers possess, this current situation is actually a leveller.

One of my longest associations is with a financial services professional who has been involved in business development slightly longer than thirty years. He is an exceptional rainmaker in the field of wealth management services. He is over 6 feet in height, he has more than a passing resemblance to George Lazenby, who played the role of James Bond, and possesses a Welsh accent that leans towards Richard Burton.

In a first meeting, in the first thirty seconds, this is a potent starting point for generating confidence in him. When you add to that, two minutes into a first meeting, in a boardroom environment, he is exceptionally skilled at communicating the value of complex wealth management products to a multiple person audience…if you are competing with him…you have some very hard yards in front of you to win the account.

In this current environment, the immediate first impressions that he delivered previously are now taken from him by the powers of the webcam. The webcam is almost Kryptonite to his communication ability and much of his rainmaking strength is diminished.

(Even I look as imposing as he does through a webcam).

Our starting point is that it is hard to build rapport via the webcam. Without rapport you have another barrier to overcome which is to communicate effectively with the other person. It requires very specific preparation to remove what barriers you can through the on-line environment. The great news is that according to best practice from South Africa, Hong Kong and Australia there is a format to developing this of which Wilkinson Reads will share the basics.

Our next blog: Rapport building through the webcam: ignore this at your peril!

The post The Lawyer, the client & the webcam: the 20% rule appeared first on Wilkinson Read & Partners.

Even at the best of times the PII renewal can be a time-consuming process, and it is often overlooked that there are two sets of underwriters involved-both an insurance underwriter and a credit underwriter providing the funding in advance for the annual premium.

This is not usually a problem as the specialist brokers have links to specialist lenders and both are set up to handle it smoothly.

This year looks different. Both markets for insurance and for money have hardened.

Several articles in the press recently have explained the background to the professional indemnity insurance market. Historic losses, the additional risks of remote working and concerns about financial stability following lockdown have served to reduce the overall capacity in the market and made underwriters more selective and expensive. A recent Law Society Gazette article suggested increases in the order of 30% could be widespread

The insurance underwriters are looking for substantial firms which meet the following

• good risk management and systems,
• a good claims record,
• strong finances and
• an immaculate presentation of the proposal documents.

Providing these conditions are all met cover should be available even if at a higher price than last year.

If the above conditions are not met things could get trickier. We have already seen examples of eye watering premium increases and punitive conditions attached. Underwriters are asking far more questions, so unless the proposal presentation is immaculate there can be several iterations before cover is offered which not only takes up valuable underwriter time and capacity but delays the process overall.

So what happens if not all the parameters are met? Cover may not be available but more likely Cover may be available, at a price, leaving only the finance to be arranged

But here’s the rub

Credit underwriters are also being more selective, asking far more questions, and taking much longer to reach an answer if they are even in the market at all (many aren’t). By an unfortunate coincidence the Coronavirus Business Interruptions Loan Scheme (CBILS) closes on September 30, so credit underwriters will be busy processing the last-minute applications under that scheme.

An influx of solicitors professional indemnity insurance applications could leave them overloaded-and take the turnaround time past October 1, even if successful. We’ve already seen credit applications which would normally take 48 hours to turn round take almost 2 weeks. And even then not all have been successful.

It is now early September, so there is less than a month to renewal. If you meet all of the conditions described above you should progress through the green channel and should still have time.

But simple arithmetic says that you need to be getting both your cover and funding agreed in parallel or you could already be too late.

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For several years we have used a five-step pipeline to model law firm Finance-

• Get client
• Get share of work
• Do work
• Bill work
• Collect fees

Each department has its own version and its own characteristics.

But we start from the premise that most collections in a 13-week timeframe will come from files which currently exist.

Firstly, we should collect the existing outstanding debtors-unless we have reason to believe otherwise. Secondly, we need to forecast the next three months billing (by department) and then identify which of that will NOT be paid in that timeframe-i.e. they will still be debtors at the end of the three-month forecasting period.

Everything else must be collected.

The billing forecast can be done in two ways. For high volume low value type work (e.g. Residential Conveyancing, Personal Injury portal, Settlement Agreements etc.) we can look at the number of transactions multiplied by the average value.

For high value work we need to use the Pareto 80/20 principle and firstly concentrate our attention on the key cases which will provide 80% of the turnover. These are especially important for sensitivity testing. One big case can make the difference between comfort and doom.

The one sure thing is that a forecast of the future will be wrong-but if we have a logical forecast with clear assumptions based largely on work that we already know we have, we have a sound base to work from.

We can then also see where we should put our attention and pressure, how much leeway we have and, if need be, we can prepare contingency plans.

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But so far many of the firms that I speak to are having far less of a problem than they had expected only a few weeks ago. Most firms are telling me that that their billing is holding up reasonably well. Since the lockdown started in late March the cash flow has been reasonably strong and has been helped by the CJRS Furlough refunds.

But when I’ve probed into the data about new work and about value creation the picture is far more mixed and generally less optimistic.

It has long been the case that law firm’s primary short-term measurement is their billing level. Unfortunately, excessive focus on this obscures some underlying issues

Firms need to hit their billing targets, and even more importantly collect in the relevant cash!

But it is just as important that they open at least as much value of files as they bill in any given month. Of course, many firms don’t bother to identify the value of the files that they open in any given month, so we have to use the numbers of files opened as a proxy. But it remains the case that unless you open at least the same value of work as you complete, your business will decline. In effect you will be selling the family silver-or as we prefer to describe it you will be draining the tank.

A third thing that we have to do in order to ensure our business is in sync is to understand and measure the amount of value that we are creating in each month. It still surprises me after many years just how few firms carefully monitor work in progress creation and movement.

Unless you open matters on which to do the work, and then create value by doing the work, you have nothing to sell, and therefore the billing will not follow.

We know that many fee earners much prefer doing the work (chargeable time) to going out and winning it-we also know that What Gets Managed Gets Better. So, for many firms it is relatively easy to monitor the amount of chargeable hours that their fee earners are doing even when working from home- it is much harder to assess the business development work that they’re doing. Therefore, any fee earner who wants to look good can keep their billing levels high by keeping their Chargeable Hours high and Neglecting to bring in tomorrow’s work.

By not keeping matters opened, value creation and billing in sync our fee earners may just be sowing the seeds of future decline.

It’s much harder to fill the tank up again than it is to drain it

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So, what can we do if we look to be headed for an overshoot?

We either have to increase the amount of cash coming in before the key date, or reduce the amount of cash going out before the key date.

Let’s concentrate on the cash out

At its simplest there are only three things that we can do to reduce the cash out in order to avoid exceeding our limit. These are

• We can defer expenditure
• We can make temporary cutbacks
• We can make permanent cost savings

Since the Covid crisis and its lockdown began most businesses including law firms have adopted the first two. This has been encouraged by the government schemes which were hoping to avoid long-term damage to the economy.

Deferring expenditure-this is often the easiest way to navigate a short-term pinch point. The government has been very keen for businesses to adopt this route by deferring various tax payments for several months. In other circumstances it can be a first port of call in dealing with operating expenses and can often be done without penalty. This can vary from simple manoeuvres like not putting the cheque in the post, through to agreeing monthly rent payments rather than quarterly. The big drawback however is that the liability to make the payment does not go away. The timing may be more palatable but may not have solved the underlying problem-but when it comes to managing cash flow do not underestimate the value of buying some time!

Temporary cutbacks-in the current environment the government has  encouraged businesses to make temporary cutbacks rather than permanent ones, particularly through the CJRS Furlough scheme. This is an excellent solution to what the government perceived to be a short-term problem. Some businesses have gone further and agreed temporary reductions to salary levels in order to avoid making permanent cutbacks. But there are many other opportunities in managing expenditure to prioritise what is essential now and what can be deferred with little hardship. Some years ago, I was regularly able to cut firms office consumable expenditure by reducing the buffer stock that they held. In one large firm we rounded up sufficient stock to last them six months without having to replenish their supplies.

Permanent cost savings-if the cash flow squeeze is more than a temporary blip, and unless there is a substantial increase in income expected, meaningful permanent cost savings need to be made. These in turn come in two forms. If there is insufficient demand in the market for our service then we have to reduce capacity. In the legal world this means reducing the number of people we employ however hard and painful this may be. We then carry on largely as before but with less people producing less output.

If however the problem is not so much a lack of demand but an inability to make us sufficient margin from the work that we are doing, then we need to make Cost Reductions. This means that we have to change our processes and methods and stop doing things which add little or no value. These tasks are either automated or streamlined out of existence and we no longer need the people who currently perform them hence their roles will become redundant.

In the last recession the legal sector saw a great deal of Capacity Reduction, but relatively little Cost Reduction. This recession looks very different-technology, automation and process improvement all mean that the future could look very different and genuine Cost Reductions will be needed.

The post Evasive Action appeared first on Wilkinson Read & Partners.

To a large extent the cash outflows are fixed-either in value or timing or both. Most payments follow a predictable cycle-Daily Weekly Monthly Quarterly or Annually

For example

• Payroll and associated costs are monthly
• VAT is paid quarterly
• Partner taxation is paid half yearly
• Bonuses may be paid annually

It is important to understand that working through the expenses part of the profit and loss account will miss many of the significant payments. For example, VAT does not appear in the profit and loss account, loan repayments and financing are balance sheet transactions.

We have found over the years that most payments will fall under one of three headings

• There are payments which are fixed in time and value which are normally direct debits or standing orders. It’s important to identify these because unless something is done to make a change, the money will leave our bank account. Many of these are also very difficult to negotiate variation to. In the profit and loss account these will include items such as rent rates, insurance, IT contracts and possibly library subscriptions.
• There are payments which are fixed in time, subject to some variation but largely predictable. These include payroll – salary and at a different time PAYE and national insurance contributions, VAT (predictable based on turnover) and business taxation (predictable based on profits). All of these have clear due dates and the broad scale of the expenditure will be known even if the exact detail is not. For example, the normal value of the payroll will be subject to variation for overtime or bonus payments or sickness.
• Disbursements have to be paid in accordance with the Solicitors Accounts Rules. They are not predictable but, in most circumstances, they are only payable once the cash is received as part of the inflows.

Taken together these three categories of expenditure normally account for well over 90% of the firm’s outgoings.

In most circumstances (other than when there is very little headroom) it is then possible to do a contingency allowance for the other sundry expenditure.

In the first instance this should give a sufficient level of accuracy to allow a useful forecast to be prepared.

If the situation is more difficult, more precision will be needed in estimating the values to ensure that there is sufficient headroom or that the early warning is used to generate evasive action

In cash flow forecasting-it should always be easier to estimate the outflows in the inflows

The post Forecasting cash outflows appeared first on Wilkinson Read & Partners.

This is not our field, but we do pride ourselves on having good contacts with many businesses who help law firms in a variety of ways.

So, we suggested they speak to a finance broker who has helped a number of our clients over the years. Again, not one of the big organisations

He reviewed their needs and profiled them against the CBILS panel. He identified only 2 members of the panel likely to have an appetite for this proposition. But fortunately, he knows his job. One of the two has approved the application. Our client can continue to service their clients with a facility adequate to see them through the tricky times next spring when the VAT and partners tax will fall due.

Of course, it is always better to have a good relationship with your bank and look to them in the first instance for your funding needs-but sometimes specialist need can be better met by smaller organisation.

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