Profitability and Cash Flow

Achieving good levels of profitability and cash flow is essential in any law firm.  It is a pre-requisite for success and without it firms fail.

The starting point for effective financial management is to benchmark your firm’s performance against others, typically published surveys like the Law Management Section Financial Benchmarking Survey, or data we gather from our clients and use to benchmark them with each other.

The key areas we review are:

• profit per equity partner
• net margin (after allowance for equity partner notional salaries)
• salaries relative to fees
• overheads relative to fees
• departmental gross margin
• lock up days
• capital to borrowings ratios
• profit to drawings ratios.

It is especially important to review departmental gross margin as any improvement at this level is likely to flow straight to the bottom line.