In light of the challenging and fast-moving environment professional practices are operating in during the COVID-19 crisis, here is a summary of some key areas to focus on:
- For firms operating as LLPs (and those that reserve for partners’ tax) the next significant cash out-flow would have been on 31 July, when the next tax payment on behalf of partners was due. The welcome optional deferral of this requirement relieves the immediate pressure on cash flow, but we would recommend firms focus on preparing a detailed cash flow forecast up to this date to assess the impact. In due course, you will want to extend this cash flow forecast further but in the current circumstances, it is difficult to assess the underlying assumptions.
- 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 in the last few days of your financial year.
- 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 partners and 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 most firms. Click here for more guidance.
- 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.
- 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 any of these actions will come from your cash flow projections through to July. 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 our staff working from home and the vast majority of our 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?
- (As already stated) prioritise converting chargeable time into invoices to clients.
- The vast majority of costs within a professional practice will be fixed, at least in the short term (to July) and a significant proportion of discretionary spend (e.g. business development) is naturally being curtailed during this period.
- Incremental people costs, such as recruitment, are also likely to slow dramatically over the next few weeks/months, but it may be necessary to formalise a temporary pause, depending on what your timesheet statistics are telling you.
- Consider taking advantage of the Government’s furlough scheme. This may be most appropriate for front of house, administration or secretarial support roles.
- Given the uncertainty around the longer-term implications of the 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.
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.
“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)
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.