Member Article

31 January is crunch day for law firms

The few months up to 31 January is a critical time for many law firms in the North West as they typically face invoices for quarterly rent, VAT and tax deadlines, as well as professional indemnity costs, at a time when income into the firm is traditionally at a low point.

“This year, the usual cash crunch could be exacerbated by the particular pressures facing firms,” says Lee Blackshaw, head of private client tax services at the Manchester of Smith & Williamson, the accountancy and investment management group.

He explains: “In our most recent survey of law firms, three quarters of law firms reported increased competition, with pressure on fees and maintaining profitability the biggest challenges in the current climate. The survey suggested that investing in technology and opening new service lines are the main ways that firms are responding to the economic upturn, however firms need to be wary of expanding and too quickly causing costs to run ahead of cash coming in.”

“All this can put cash flow under severe pressure. Cash flow must therefore be very closely monitored and managed, with comparisons against budget on a weekly or even daily basis. If necessary, firms may need to consider negotiating a short term bank loan, asking partners to minimise their drawings or put more money into the firm. Another option is to negotiate with the tax authorities and request ‘time to pay’ when it comes to partners’ tax payments which fall due on 31 January,” he added.

This was posted in Bdaily's Members' News section by Smith & Williamson .