Efficient business: Part 1
As the new Government sets about its efficiency drive, the rest of us in business need, perhaps more than ever before, to ensure we are running as efficient a ship as possible. When times get tough, the most efficient businesses weather the storm best.
What follows is a quick summary of what might be considered the characteristics of an efficient business. Much may seem self-evident, but it never ceases to amaze us how often the problems that arrive through the UK Register of Expert Witnesses Helpline boil down to a lack of basic business nous!
Rising to the challenge
According to Paul Lynam, Chief Executive of Natwest Business Banking, ‘When economic conditions deteriorate, small businesses are usually the most vulnerable. They tend to have fewer resources, less capital and typically rely on a smaller number of customers than larger businesses.’
Now the expert witness marketplace is not the typical small business sector. As we have shown before, expert witness business activity is unlikely to be the worst hit of businesses during a recession. Furthermore, there are not many expert witnesses who run a business dedicated solely to forensic work. With luck – or was it good planning? – the impact of recession, and deficit reduction, may be felt less by expert witnesses than by other professionals.
In general, now is not the time to launch into new and speculative areas of work. A little diversification may work well (if you don’t already, try using your skills to move into alternative dispute resolution – see our factsheet on the topic in the Expert Library), but consolidation of your core business should be the focus.
Fortune favours the prepared. So it’s certainly worth considering your cashflow, how you deal with bad debts and how to spread the risk.
The reason most businesses fail is not that they are unprofitable, but because they run out of cash to pay the bills. And they run out of cash because there is a failure to keep on top of cashflow.
For many expert witnesses, of course, overheads are likely to be low and the old business adage, ‘turnover is vanity, profit is sanity’, is not news. But we all have taxes to pay. More importantly, we have to pay tax on work done, whether or not we have yet been paid.
While cashflow may not be a major concern for you, keep it in focus. After all, it’s better to have the money in your bank account rather than in your customer’s.
So how can you keep control of cashflow? The focus should be to tighten up existing systems of credit control with lawyers. You’ll need access to the right management information and the ability to act promptly on any warning signs.
- Always use written terms of engagement – For help preparing a standard set of terms, see information about our Terminator application (which is free to experts listed in the UK Register of Expert Witnesses) or purchase a copy of Expert Witness Fees. Use them to state clearly your payment terms and procedures for late payment and cancellation fees.
- Ensure your bill is accurate and complete – Informal polling at various conferences has led us to believe that many experts undercharge by at least 20% because they fail to put in place accurate record-keeping systems. So subsequent billing does not fully reflect the amount of time spent on a case. A basic time-recording spreadsheet is essential; properly done, it will even write your invoices for you!
- Encourage prompt payment through a carrot and stick approach – You could offer a discount for early settlement. Or you could use your terms to impose interest on late payment, together with the contractual right to charge the lawyer for the cost of any debt recovery action. And remind your lawyer in a helpful way of the carrots and sticks that were agreed to in your terms. For example, include something like this in your accompanying letter (or, indeed, at the foot of your invoice as well) ...
‘May I draw your attention to the [X%] discount I am offering favoured clients for payment within [2 weeks] of invoice. To take advantage of this privileged offer, please ensure payment reaches me by [DATE1]. Should you prefer to wait the full [30 days] before settling the account, please be aware that this invoice must be paid by [DATE2] to ensure contractual late payment penalties are not incurred.’
Obviously you need to replace bracketed text with your specifics.
- Improve your report follow up – Speak to your lawyer to ensure he is happy with the report. If he is and he has had this extra bit of client care, he will find it a bit harder to delay payment. If he’s not happy, you can act quickly to resolve the matter and work towards securing timely payment.
- Send out prompt, clearly structured and detailed invoices – The more detail the better, and the less likely that spurious queries will be raised to delay payment.
- Demand staged payments – Staged payment systems may be useful if you have any concern about a particular customer’s creditworthiness or the potential size of an invoice. Agree to a planned series of invoices, each of which must be paid before work continues.
- Monitor payment schedules – If a customer seems to be taking longer to pay bills, intervene early. Don’t wait for a bad debt to arise.
- Follow up invoices promptly – Once you have sent an invoice, give your client a call to ensure it has arrived safely and that there are no problems. Our experience is that many Accounts teams in law firms wait for a telephone call chasing payment before an invoice is passed for payment. If your terms give 30 days to pay, your second call should be to the Accounts Department on day 25 to check payment will be made on time.
Some experts find it best to separate themselves from these administrative steps. By all means use someone else to deal with the money side of your business. But don’t let this artifice confuse you. It’s your business and it will pay dividends to keep on top of finances.
Your overheads can also impact on cashflow. While these are likely to be fairly low for self-employed or small-business expert witnesses, a number of simple changes can prove effective.
- Turn off office equipment at night.
- Make best use of teleconferencing, rather than travelling to meetings.
- Check you have the most cost-effective rate for your telephone/electricity/gas tariffs.
- Check with your accountant to ensure you are using all of your tax allowances.
- Re-negotiate with your bank for mortgage payments and banking services.
- Re-negotiate contracts with other service suppliers, e.g. accountants, cleaners, office accommodation.
- Assess your staffing levels. Could improved office efficiency save on wages?
Next time... bad debt and spreading your risk.