3 Numbers To Keep An Eye On

on 7 February, 2013 Email this Email this - Print this Print this

There is a saying – ‘if winning didn’t count, no-one would keep track of the scores’, so when you’re running a business, SOMEone, should be keeping track of the scores.  

This blog from Lisa Newton (CoreLegal founder member and founder of Boogles Ltd, the London-based specialist bookkeeping service for solicitors and barristers) will give you three ideas of what you can track on the FINANCE side of your business… and why its so important.

This person is usually the bookkeeper / accountant. The thing is, there’s lots of things you can track and measure… number of clients, number of client enquiries, website hits etc., but these are all along the lines of marketing.

 

SALES

It’s a very obvious one – sales. What is the sales turnover? Is it more (or less) than the same time last year? What was the sales target? Are you on track? Have you smashed it? Or are you far behind? Normally, most people have a very good idea of what their sales are. That’s often the one thing they’re on top of. Many people like to use it as a benchmark for themselves, as a measure of their success or self-worth but in reality – its not the one which will indicate whether the business is any good. It shows you what you’ve billed. Which may not even be what you’ve collected in! … so despite the popularity of this key indicator – don’t let it dazzle you. It’s only part of the picture.

 

Imagine this scenario. A solicitor is working around the clock. Being very ‘productive’. Charging for every billable minute they can use. They have a faithful secretary who is assisting them with their paperwork, they’re renting a small office space. And they clock up £100,000 of billable hours. They’re really pleased, but then they look at the profit & loss account which their bookkeeper has produced for them, and they see that their ‘profitability’ is just £2,000 – and they can’t understand why. So then they look at the lines underneath the ‘sales’ figure – which is a list of the ‘expenses’ and they’re rather alarmed at the amount they’ve spent… travel, training, marketing, wages … and suddenly, they feel quite dejected.

 

PROFITABILITY

In their ‘excitement’ of just counting the sales… they failed to realise that there is a ‘cost’ to generating these sales. And although they’d like to pay themselves ‘£5000’ a month… the business isn’t going to sustain it because there are other expenses to take into account. Profitability is important. Especially, if you wish to sell your firm, or to raise finance – a potential investor or buyer wants to buy a profitable business. If there’s no profits, then its not worth anything to them.

So bear in mind the drawings you take, and the profitability of the business. Many solicitors don’t see their ‘business’ as a business. They see it as a vehicle to pay them as much money as possible. They leave nothing in the business to grow it or sustain it, meaning, its not really a business, but a well-paid job. And that’s fine… if that’s what you want it to be.

 

DEBTORS – AMOUNTS OWED TO YOU

For whatever strange reason… many solicitors don’t like to pursue debts owed to them. But its not a phenomena which only solicitors suffer from… other small business owners and self-employed people have the same problem. The difficulty though, is that you have to keep track of this figure… You shouldn’t ever count UNPAID invoices in your mind in the sales figure… that ‘sale’ may never come in. And many people make this mistake, and they end up spending money which they don’t yet have (and may never have), and this can cause them to run into problems.

 

ALARM BELLS

The first indicator is that you make have problems is in the cash in the bank… when the bank starts running into the red… alarm bells should start to ring. Another sign, is not having the VAT or HMRC payments when its due. If this has ever happened to you – slow down, and just LOOK at what money is where.

Often, professionals are busy working on what they do best – their profession, to necessarily have time to work these things out. It’s the kind of detail which they’d rather not concern themselves with. Some people just check their bank account – and as long as some money is in there – they feel fine… but they may not have any idea of their real financial situation because they’ve not taken a look at the whole picture.

 

If you’ve ever been in a situation when you don’t want to face the picture, when you don’t want to open the envelope, when its not something you want to face – then the best thing you can do is to work something out with your accountant and bookkeeper, and face it together on a monthly basis at least. These things have a tendency not to get any smaller or to disappear. They just linger and fester, so its better to face it, get a plan in place and don’t spend what hasn’t come in yet!

 

Find out more about Boogles’ specialist bookkeeping services for solicitors athttp://www.booglesltd.com/ or call 020 3371 8894

 


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Topics: bookkeeping · Law firm management · Professional opinion
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