How to improve profitability in the face of increasing employment costs

Professional practices are people-based businesses and have been seriously impacted by the increase in employers’ National Insurance announced in the 2024 Autumn Budget.

Now is an excellent time to perform a thorough review of all procedures to identify opportunities to increase efficiency and profitability. We explore five key areas for consideration:

Pricing

Fee disputes and poor recovery of time often results from a creep in the scope of the project where the client considers that the ‘small’ additional piece of work should be part of the original fee. Ensure the scope of your services is clearly agreed with the client upfront. If additional work is requested, make it clear to the client at the time that an extra fee will be raised.

Review your rates and consider making bold choices. Most professions are still facing resourcing issues with quality staff difficult to find. If you’re turning away work, consider putting up your rates, even if this makes you expensive in your local market. Clients will pay for quality.

Time recording

Professional practices sell time, making it vitally important that all client related time is accurately recorded. The decision to ‘give away’ time should only be made by the business owner or senior decision maker; not by employees. Review how your team’s performance is monitored to ensure that employees are motivated to increase utilisation.

Consider automated time recording systems to improve time capture.

Improve efficiency

Remove administrative tasks from fee earners. Where possible look to automate processes, alternatively consider employing an office manager.

Giving fee earners an extra hour a week to devote to client work will cover an extra administrative salary.

However, it is important that employees are encouraged to spend time on quality non chargeable task such as training junior team members and marketing. These skills are essential to developing the partners of the future.

Cost control

Review your overheads and critically consider the real value generated by each expense. For example, how many people read that publication; what benefits have derived from travelling to that annual conference?

Lock up

Having efficient procedures in place to reduce the time between completing work and being paid by your clients, will reduce the cost of working capital as well as reducing the risk of fee disputes. Poor working capital management is often down to partners not prioritising billing and cash collection. As far as possible these processes should be automated, so that partner input is limited to approving the invoice raised by the administrative team.

Although, many professional practices still bill on completion, consider incorporating stage payments into your standard terms. An effective credit control team, who have full authority to contact clients and collect overdue funds, is essential.

We advise professional practices across the UK, and if you’d like to discuss ways to improve your firm’s profitability, please get in touch with Sheryl Davis.