Cambridge Blue Square Management

Where do I get help for my business?

More and more business leaders are finding it tough to keep on top of all the demands of their business.

In particular, the financial aspects are often the ones that cause the most anxiety.  Problems with VAT, cash flow, the bank, the need to improve profit, understanding the management accounts and the key performance indicators, (KPIs) etc., cause a constant headache to the hard-pressed and overworked entrepreneur.

To take this problem away, many smaller businesses are turning to part-time Finance Directors.  The part-time FD will help with the figures of course but they will also help the MD or owner to resolve the problems they face.

Having a qualified and experienced individual with you when going to the bank to renew or extend borrowing facilities is more likely to lead to a successful outcome.  They are usually experienced in leading the IT within the business and can provide ideas to improve the use of IT within the firm. 

Other areas where the FD can help are in requesting better and more informative management information and KPIs.  They can also explain them to the MD or owner and suggest areas where attention needs to be directed.  This gives the banker greater confidence in the figures and in the management team’s ability to make any appropriate corrective action.

There are many areas where an owner or MD will be reluctant to admit a problem exists.  The part-time FD will be an external sounding board, rather like a non- executive director or chairman and in time will probably become the trusted advisor to the business.  They have usually recognise a problem when they see it having seen it before in previous businesses.

Choosing the right part-time FD is not simple but the most important issue is to get the right chemistry between the business owner or MD and the part-time FD.  That has to be based on trust and respect for each other.  Qualifications will help provide confidence that the FD has the right training to deal with the range of problems that may be faced and have kept up with the rules and regulations through their Continuing Professional Development.  However, once you find a qualified FD with whom you think you can work, it is important that they understand or can quickly understand your business.  As professionals get more experienced they can get more specialised and there are many specialist out there.  You might find a specialist or you might not.  It depends upon you industry or profession.

Finally, there are organisations who provide a part-time FD but they will charge a higher rate than if you find one directly.  That could be facilitated with the help of your accountant, a search on the web or LinkedIn, a call to your nearest regional office of the ICAEW, CIMA or ACCA or simply asking for recommendations.

Contact:  If you want to use a part-time FD or know someone who does, then I would be pleased to advise you in finding the right one for you.

Leadership as told by the Costa Concordia disaster

BBC Radio 4’s “Today” programme carried an interview this morning with 2 academics who have studied the actions of humans in times of disaster & emergency, such as Twin Towers attack and aircraft crashes.  Not for the faint hearted, except that the message was hugely uplifting and interesting for anyone who wants to manage people effectively.

What their research had shown was that when the people being led to safety trusted the honesty and integrity of the message they were being given, they rarely panicked or showed signs of the manic behaviour in disaster movies.  Instead, they followed their instructions in an orderly and clam fashion, despite the danger they clearly percieved.

The reason for this was that they trusted and believed the messages from the leaders at the time, typically air crew, cabin crew etc because the previous messages were also honest and consistent with what they were now being told.

Management can learn from this.  It is another example of why having the right corporate values of honesty and openness will enable them to run a disciplined and orderly business.  It is as old as the hills but worth repeating again and again and again…………. until we all get it.

Law Firm Key Performance Indicators (KPIs)

You want your law firm to be profitable, cash generative and grow.  This means your people must be working effectively and stay with you to develop your business.

What are your KPIs?  Immediately many will think of:

• “Utilisation” i.e. the number of hours worked compared to the time available.  It is also “Chargeable Time”.
• “Recovery Rate” i.e. the proportion of time billed compared to that on the ledger and
• “Lock-up days” which is broadly speaking the time taken from the start of the matter to the time you collect the cash.

These are important in managing your matters and the staff but they may miss the point.  These are really “Results Indicators” and not performance indicators.

KPIs must be distinct “upstream” indicators of what results are likely to be further down the line.  They must be early enough in the cycle for management to take corrective action if necessary.

So what might these KPIs look like?

New clients and new matters:

Measure:

• calls made to gain appointments
• blogs written
• webpages updated
• e-mailers sent out
• seminars arranged
• etc etc

Note that these are controllable and upstream and not “after the event”.

They have the advantage of potentially being targeted in staff appraisal objectives.

Staff management

Measure:

• matters allocated per staff member
• matter & case management has planned regular improvements and upgrades
• planned training for each staff member, (legal & management issues)
• clear objectives set for all staff 

These are in advance of the work to be done and should ensure that the work will be done more efficiently.  Those results indicators should then improve as each employee will have the ability to doe the appropriate amount of work that they have been allocated.

Lock-up

Measure:

• training sessions on finance for every fee earner
• predict downstream effects of new matters, hours recorded and intervene where appropriate
• set targets in days by department, team and individual,for acceptable levels of lock-up

Conclusion

These are not exhaustive and your business may well have better, more appropriate KPIs to monitor.  If you do, that’s great.  If you don’t, then consider using someone to help you with the process.  It is helps you fully think through your business processes and that is the first step to improving them.

Firms lose profit by downsizing

Firms who sell time and experience, such as professional services firms, often lose profit when they downsize.  The management in many firms are rightly focused upon profit: but when they lose staff to try and increase profit, they often reduce their profit.

Why is this?

Managers often make the mistake of looking at the average profit per head, which includes everyone’s share of the firm’s fixed overheads.  They see a “loss” from that individual and with the usual heavy heart, let that person go.  The firm has saved their salary but they have not “saved” any fixed costs.  

To be clear what “fixed overheads” are: they include things that cannot be changed in the short term - say a year.  E.g. Rent, rates, PII and other insurances, subscriptions, licences etc.  Many of the other overheads will not, in truth, reduce much either, such as stationery, telephone, light & heat and - dare I mention - referral fees

What just happened?   The firm’s overheads are unchanged but are now being shared among a lower head count.  So the costs per staff member have increased.

If total fees remain the same because the workload from the redundant employees has been taken up by the remaining staff, the firm will be more profitable: but there are two other scenarios:

1. The lost fees are not, or only partly, recouped by the remaining complement.
2. The fees are recouped but the increased cost per head makes other staff appear unprofitable and they are asked to leave.

In scenario 1, losing staff has led to a direct loss to the firm.  The lost fees were more than the staff costs saved.

In scenario 2, further staff reductions will ultimately lead to decline in profit because the fixed costs cannot be reduced as fast as staff leave.

In making such decisions, management should look at the incremental or marginal costs and revenues and not the average costs and revenues.

I have seen many examples where decisions were made on the average cost and revenue basis and afterwards firms were looking again very quickly to see why they had not improved the bottom line.

If you like, it’s a reverse of the good old days in the City law and accountancy firms, when increased gearing was the mantra and staff numbers were growing rapidly.  The maths never changed.  All that is different now is whether staff are working at capacity and that is the subject for another day.