The expansion of the professional services sector offering in Northern Ireland in recent years has been exceptional. Belfast is now becoming a recognised global hub for legal services, in particular, and as our economy re-establishes sustainable growth, the local professional services sector will increasingly be required to deal with the needs of businesses operating here and beyond our shores.
In addition to Northern Ireland’s reputation for offering 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 and growing operations here. The growth is not only good news for lawyers, but also provides opportunities to, for example, HR, technology and project management professionals.
Significant growth has also been reported by many of the indigenous NI law firms despite real challenges of talent management, competition and regulation.
The growth in the sector is undoubtedly good news. However, law firms should not ignore the fact that optimising cash flow is, ironically, particularly important in times of expansion. Whilst firms will rely on differing sources of external funding, often inadequate focus is given to the cheapest form of liquidity available to them – the release of 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 during the course of the year is often not reflected in the 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 will also assist management when considering how best to invest for growth. Good working capital management will not only reduce billing write-offs, but crucially will also support growth initiatives through the release of valuable cash resource.
The outlook for the legal services sector in Northern Ireland is positive. Whether it is the provision of 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.