Economic outlook and flexible pricing approach

This Article first appeared in the Autumn 2022 edition of The Law.

The Law Autumn edition

The Office of National Statistics tell us that Inflation is at 9.1% (at the time of writing) but worse may well be to come and such significantly rising costs are likely to cut profit margins. Your clients will also be feeling the financial strain so may be delaying payments or reducing scopes to bring costs down. In the coming months cash will be king.

Here are five key ways to aid the survival of your business:

Understand your cash position

Turnover and profits are important, but knowing what your cash position is helps drive decision making and can be the difference between whether you survive a crisis or not. Prepare a cash flow forecast to establish the cash requirements over the next few weeks and months, and help you deal with any issues in advance.

Stay on top of your debtors

Any overdue amounts must be chased immediately. Consider putting the client on ‘stop’ if they are late paying. In times where you may be supplying a service that is scarce (conveyancing fee earner vacancies are very high at the moment too!), you should also be looking at payments in advance.

Examine all your costs

Cost control is vital. Go through all your costs line by line to see if each cost is required to achieve your turnover.

Manage your creditors strategically

Always try to negotiate the best payment terms with your creditors. If your cashflow projection shows a shortage then communication with your suppliers is vital.

Thinking about your pricing

If your firms own internal inflation rate is 9% (ie – don’t take the ONS’s version, calculate your own!) then its entirely reasonable to raise your fees by 9%. But in a scenario where you are already over capacity you may need to go further – 15%? Of course not all clients will accept this level of price rise. To an extent that is the point (If you are busy enough, at the higher rate then you don’t need the work) but it also allows you to open up a conversation about scope and to be more flexible with your pricing – if they agree to go without X, or to only have one draft then you can agree to lower your price again. Of course that only works if you stick to it – be ready to raise the price again if the scope creeps up again.