Profitability poser

Our profitability is at a record low despite revenues staying stable. We are sub 5% and we need to be in double figures at least and quickly. What corrective action would you propose?

First gather as much data as you can and analyse that data. Depending on the size of your firm, there will probably be several reasons for the lack of profitability and you need to pinpoint them all and then rank them in order of importance and ease of correction.

Begin with your time recording records and ensure all full time fee earners are recording at least 1,200 chargeable hours a year. If not, find out why and correct.

Then check that they are achieving maximum percentage recovery of whatever hours they are recording. If they are undertaking work which does not realistically pay for their time, look for other work or to delegation to cheaper fee earners or par-legals.

What is your ‘lock-up’? How much have you got tied up in Work in Progress and Debtors? Can you pressurize fee earners to bill more of it and stop working for clients who won’t pay them?

Notice that Iíve still not mentioned that you take a look at expenses? There is so much else you can do which would make a huge difference to your bottom line before you take a look at your overheads for the tenth time. I’m sure youíve been through the nominals and cut out what you can. There is probably more you could do, but it is unlikely to have as big an impact as hitting your time recording, billing and recovery of lock-up processes.