Living the Eye Life!
What a summer that was! For the first time in my career, I was selecting which client firms to go and visit based on the quality of their office air-conditioning. Now that, as most of you will understand, is not that easy given most firm’s reluctance to invest in that sort of extravagance. You cannot blame them really given that it only happens for a few days of the year at best. We seem quite content to buy everyone a fan and just blow warm air around the office until things cool down a bit. Just recently I was speaking to a client based in the middle east who are in the process of opening up a London office and I was complaining how hot it was in the UK. He pointed out that when he got into his car to drive to work that morning his car thermometer was reading a staggering 51 degrees, and that was at 7am in the morning! We swiftly moved on to discuss legal and COFA related matters.
One of those matters was how you go about merging with an existing UK firm and converting to/setting up an ABS. This has been a subject close to my heart since the phrase alternative business structure was first ever uttered. Over the years I have been seriously invested in this subject and I have to say this is one area where the SRA have made significant strides. Many of our clients have gone down this route, usually to bring in non-solicitor owners or to offer different professional services to their client base. What may be of more interest is that many of them are not big international firms looking to expand their footprints, but much smaller firms looking to differentiate themselves from their local competitors. If you are working in the finance department of a law firm that is considering moving down this path you need not worry un-necessarily. I can guarantee that a legal cashiers’ skills will be very much in demand.
That said if new partners are about to get involved you need to start planning ahead. This does not just mean potentially forming and ABS, it could be a take-over or a merger. As I have mentioned in previous columns, this is very much a feature of the legal sector right now. In these situations, the best thing you can do is make sure your house is in order. A bit of COFA related spring-cleaning is the sort of thing you should be focussing on. To begin with, you need to start running some key reports. I see so many firms that have invested in great accounts packages that can tell you so much but are hardly ever used.
Let’s start with a really easy one, zero balances. This is not an SRA regulatory requirement, it’s just a great piece of house-keeping that can have some real benefits. First of all, it will hugely improve the performance of you accounting system making it quicker and much more responsive. This in itself will make you more efficient and leave you feeling a lot less frustrated. It will also make everyone in the firm focus more on archiving old matters as failing to do so can significantly increase your operational costs. File archiving is an expensive business and firms need to stay on top of this issue.
Next up is residual balance reports which as some of you know is another favourite of mine and one that firms battle with constantly. Here is a suggestion, try running a report where there has been no movement on client account in more than 12 months. That report will not in itself satisfy the SRA and your reporting accountants. Client money needs to be returned to the client immediately there is no reason to hold it. But this report will quickly identify all those matters which need looking into as a matter of urgency as to what action needs to be taken. I know from experience that this is not something anyone wants to take on. It is one of the most common reason firms call us to ask for help. You need to start somewhere though, and this report will at least give you an idea of the scale of the problem you might be facing. Then you need to go and talk to the managing partner and start making a plan as to how you will get it resolved.
The third report you need to focus on is your debtors and in particular your 90 days and over report. This is a great way of getting your fee earners to start collecting the cash that is due to you. It’s also a much better position to be in at year end as you will have paid VAT on amounts that you may never collect and which you can reclaim from HMRC. Keeping irrecoverable VAT on your books just doesn’t make any sense, particularly if your fee earners are being measured and remunerated on their billing.
It’s been a busy summer for all of us at Financial Eye but fortunately it’s been a productive one. Next week we’re back on the road or should I say train. It’s been a bit of a challenge working around a summer of rail strikes but we have still yet to miss a client visit. One final thought, as hot as it has been, it was nothing like that experienced by my client in the middle east. How on earth the England football team will cope in Qatar is beyond me. Fortunately, the English women’s team, playing in conditions that were still not easy for any of the sides, were able to bring it home! That will be my best memory of this summer.
Director – Financial Eye