Managing money key to being financially sound
The expansion of the professional services sector in Northern Ireland in recent years has been exceptional. Belfast is becoming a recognised global hub for legal services in particular and as our economy gets back to sustainable growth, the local professional services sector will increasingly be required to help businesses operating here and beyond our shores.
In addition to Northern Ireland's reputation for high service quality and good productivity, operating costs are reportedly 50% less than London and 30% less than Dublin, making the province a magnet for international law firms.
Allen & Overy, Herbert Smith Freehills, Baker & McKenzie and Axiom Law all have significant, growing operations here. The growth is not only good for lawyers, but also gives opportunities to, for example, HR, technology and project management professionals.
Significant growth has also been reported by many indigenous Northern Ireland law firms, despite challenges of talent management, competition and regulation. The growth in the sector is undoubtedly good news. But law firms should not ignore the fact that optimising cash flow is, ironically, particularly important in times of expansion. While firms rely on differing sources of external funding, often inadequate focus is given to the cheapest form of liquidity available - cash 'locked-up' in work in progress and debtors.
Managing 'lock-up' in professional services firms can be challenging. A balanced picture of the working capital requirements of a firm over the year is often not reflected in year-end financial statements. For working capital management to be effective, the all year round 'contract to cash' cycle should be embedded in the culture of any professional services firm.
Billing regularly and managing debtors will help the firm remain financially sound and help management consider how best to invest for growth. Good working capital management will reduce billing write-offs and, crucially, support growth initiatives through the release of valuable cash resources.
The outlook for the legal services sector in Northern Ireland is positive. Whether giving advice to foreign direct investors hoping to avail of the potentially reduced corporation tax rate in April 2018, or the development of contingency plans to deal with any constitutional change that may potentially arise from Brexit, local law firms will have an important role in providing advice to the local, national and international business communities.
However, in both good and bad times, cash flow management ought to remain a high priority for the sector.
For further information or advice on the professional practices sector, Francis can be contacted at firstname.lastname@example.org Grant Thornton (NI) LLP specialises in audit, tax and advisory.