With the uncertainty around the longer-term implications of the Covid-19 outbreak, you may want to start planning for future actions, but our strong advice is to focus on the next few months to the end of July as your priority. In light of the challenging and fast-moving environment law firms are operating in, here is a summary of some key areas to focus on:
- The Covid-19 crisis has hit us more quickly and in a more fundamental way then we could have envisioned for Ireland just a short few weeks ago. For legal firms, adapting to new work arrangements and necessary restrictions has been an immediate priority. However, the issue of cash and cashflow will now come into sharp relief and we’ve put together some ideas for your game plan.
- Forecast: We strongly recommend firms focus on preparing a detailed 12 week rolling cash flow forecast, reviewing weekly cash receipts and payments and to assess the impact or payments, income, billing and collection.
- Payments: A critical review of weekly payments should be undertaken. These include salaries, bank loan capital and interest, VAT and Corporation Tax (CT) Rent, Rates, Insurance, Utilities and Trade creditors. This will enable important decisions on what needs to be paid and what can be deferred.
- Income: Ensure you partners, and their teams, are prioritising work where clients have the resources and ability to pay.
- Billing: Focus (even more than normal) on keeping billing up to date. This may be more challenging: staff are working remotely, and your system will need to deal with the inevitable rush of invoices raised at month end.
- Collection: While you will want to be supportive of your clients, it is crucial that extra effort is put into collecting outstanding debts. Make sure all fee earners understand your standard terms and conditions and ensure these are enforced appropriately, unlike the more relaxed approach that often exists towards credit terms in many firms.
- The Bank: Consider speaking to your bank about extending your facilities. You may not need them, but it may be a sensible contingency plan to organise now, rather the moment you realise you need it.
- Cash call: Discuss with your partners the possibility of deferring distributions and/or raising additional partner capital. Again, this may not be necessary, but managing partner expectations will be key to success if you need to go ahead.
Ultimately, the necessity for actions will come from your cash flow projections. However, it would make sense to apply some sensitivity analysis to these projections, flexing a fall in revenue and a delay in cash receipts to get a feel for the extra resource you may need.
- With the vast majority of staff working from home and the vast majority of revenue streams still based on chargeable time, it will be necessary to keep a close eye on the levels of time being recorded.
- If not already in place, move to daily confirmation of timesheets.
- Ensure close review of this information to allow prompt decisions on work allocation to take place. To what extent can you reallocate people to areas of the firm that are busy?
- Prioritise converting chargeable time into invoices to clients.
- Make decisions early! Look at areas where cost savings can be made.
- Non-core staff: Consider taking advantage of the Government’s Temporary Wage Supplement Scheme. This may be most appropriate for front of house, administration or secretarial support roles.
- Pay: We are also aware of pay cuts being implemented by some firms from 1st April in the order of between 10 and 30% for qualified, management and partners. Some firms are applying cuts equally and others graduating these adjustments according to earnings or grade.
- Variable cost? The vast majority of costs within a professional practice will be fixed, at least in the short term, and a significant proportion of discretionary spend (e.g. business development) is naturally being curtailed during this period.
The current environment is challenging all aspects of business, but those professional practices that focus on maintaining a strong financial base will be best placed to benefit when the world returns to a more normal working environment.
Tax and government legislation is that prevailing at the time (as at 31st March 2020), is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions.
“You may not control all the events that happen to you, but you can decide not to be reduced by them”. Writer Maya Angelou (1928 – 2014)
We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action on the information it contains.
Smith & Williamson Freaney Limited Authorised to carry on investment business by the Institute of Chartered Accountants in Ireland. A member of Nexia International.