David, the sole practitioner of a law firm, found that his revenue had stagnated and he was constantly facing cash flow problems. David was jolted into action by an honest conversation with his CPA, who asked him how many hours he worked in his firm each year. The lawyer estimated approximately 2,000. The accountant then asked the lawyer to divide his profit by the hours worked and demonstrated that he could likely earn more per hour by working for someone else. This, together with all of the hassle of running his own firm and dealing with employees, inspired David to make some changes.
A CPA’s advice greatly increased a law firm’s cash flow.
David took a deep breath and asked his CPA if he had any ideas to help him improve his business. Together, they set about implementing the following project plan:
- Major clear out of work in progress (WIP – work done by David’s team but for a variety of reasons, not billed to clients.) They went through the WIP line by line and found that there was a large amount of unrecoverable time that had to be written off but also a significant amount that could be billed. This provided the team with a much clearer picture of what was in WIP. They now have a focus on closing jobs and reducing the number of open jobs and as a result, faster job turnaround has been achieved.
- The accountant observed that there was paper everywhere and suggested that this may be causing inefficiencies. They invested in some software and have moved to a predominantly paperless office environment. David estimates this has freed up 10 hours week for him personally and more for his team.
- They implemented a receivables system, including emails, phone scripts, letters and pre-determined follow up periods for all clients. This combined with the first change reduced lock up (amount of cash tied up in WIP and receivables) by 70% and freed up a huge amount of cash flow.
David’s cash flow problems are gone and with the extra time, he and his team have been able to bring on new clients and sell additional projects to existing clients. The result – a 30% increase in revenue, much of which dropped to the bottom line, with profitability tripling in the business.
Many businesses face the same issues, regardless of the industry in which they operate. If you think you have the potential to increase your sales, profit or cash, please call Williams & Kunkel CPAs today in Flower Mound at 972-446-1040 to have a chat.
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Source: Panalitix