ANOTHER ONE BITES THE DUST!

In the words of Freddie Mercury and Queen … another one bites the dust!

I was really sorry to read that Mezzle had recently gone into administration. While I hadn’t done any work with the firm, I always thought Mel Kang came across as a really nice guy with good intentions.

However, intention is not enough, is it?

Even if I had worked with the firm, as I always get money up front, I wouldn’t have lost out.

And I say another one bites the dust because I have also heard of a traditional law firm which went into administration over an unpaid tax bill.

How On Earth Does That Even Happen?
Well, I suspect there are several reasons why a firm can generate fees and still find itself in trouble, and an unpaid tax bill is a pretty good place to start.

The Law Society Gazette reported that HMRC had brought a winding-up petition against Mezzle over an unpaid tax bill.

So, it’s not necessarily about the business model, is it?

You might generate plenty of fees, but that doesn’t necessarily mean you’ve got the money in the bank to pay your bills.

There’s clearly a difference between work you’ve done, invoices you’ve raised and money you’ve actually received. And if you haven’t put enough aside for your tax bill, eventually it’s going to catch up with you.

My Simple Rule for Staying Ahead
By the way, I have a very simple system. When an invoice is paid, I transfer the VAT and at least 20% of the sum to a separate bank account, so I always have money to pay my VAT and tax bills. It’s not rocket science, is it?

Is that something your firm does?

What Has This Got to Do with Maximising Fees?
Quite a lot, actually.

It’s not just about how much work you bring in, is it? It’s about what you charge, getting paid and whether you’re actually profitable. It’s not about ripping clients off.

I see too many lawyers who are so concerned about keeping clients happy that they end up doing work for less than they should be charging. They take on extra work without discussing the additional cost, or they agree a fee without properly considering how much time and expertise the matter is likely to require.

And that’s where problems start. You can be busy all day, working long hours but if you’re consistently undercharging, you’re making life difficult for the firm and for yourself.

Busy Doesn’t Always Mean Profitable
Of course, you also need to make sure you’re getting paid. There’s little benefit in doing the work and raising the invoice if the money doesn’t come in. That’s why I favour getting money upfront wherever possible. It gives you greater certainty and avoids having to spend time chasing clients for money you’ve already earned.

But there’s another aspect to this which I think is worth considering.

Are Your Fees Still Fit for Purpose?
How often do you actually look at the fees you’re charging and ask yourself whether they’re right?

I’m not talking about putting your prices up for the sake of it. I’m talking about looking at the work you’re doing for a client and making sure the fee reflects what’s involved.

Take a fixed-fee matter. You agree the fee based on what you know at the outset, but as the work progresses, things may change.

The client has another question, produces another document or asks you to deal with something that wasn’t part of the original instruction. Before you know it, you’ve spent considerably more time on the matter than you anticipated.

The Conversation Too Many Lawyers Avoid
Do you charge for that additional work, or do you just get on with it because you don’t want to have what you perceive as an awkward conversation with the client?

I suspect, nay I know, that plenty of lawyers choose the latter.

The trouble is that clients aren’t likely to tell you that you’re doing more work than you originally agreed to do. From their point of view, they’re paying you to deal with their problem. It’s up to you to explain what’s included in your fee and to raise the issue if the work goes beyond that.

And if you find yourself regularly spending more time on matters than you expected, it’s worth asking why. Perhaps the original fee was too low, or the scope wasn’t clear enough. Or maybe you’re simply giving away work that you should be charging for.

Looking After Clients Isn’t the Same as Subsidising Them
None of this is about being unreasonable with clients. Most clients want to know where they stand, and there’s nothing wrong with explaining that extra work will incur an additional fee. What matters is having that conversation before the work is done, rather than presenting the client with an unexpected bill afterwards.

There’s a difference between looking after your clients and subsidising their legal work.

The Cost of Small Decisions
I also think lawyers sometimes underestimate the effect that small decisions can have on their overall earnings. A bit of time written off here, an additional task thrown in there, a fee agreed because it feels easier than negotiating. Each decision might seem insignificant, but over the course of a year, it can add up to a considerable amount of money.

The Bigger Lesson from Mezzle
And that brings me back to Mezzle.

We don’t know the full circumstances behind the firm’s administration, and it would be wrong to assume that undercharging or poor financial management was responsible. The reported unpaid tax bill doesn’t, on its own, tell us why the firm ended up in that position.

However, it does raise an important question for every law firm: do you know the true financial position of your business? Generating fees is important, but so is knowing what you’ve actually collected, what you owe and whether the work you’re doing is making you money.

You can have a full caseload and a healthy-looking turnover and still run into difficulties if the cash isn’t there when the bills fall due. Equally, you can work incredibly hard and still fail to make a decent profit if your fees don’t reflect the time and expertise involved.

I focus on helping law firms maximise their fees ethically. Not by charging clients ridiculous amounts, but by making sure lawyers recognise the value of their work and charge accordingly.

Mezzle’s situation is a reminder that you shouldn’t take the financial health of your law firm for granted. We may not know what went wrong, but you can take a closer look at your own business and make sure it’s not simply generating fees at the expense of profitability.

Don’t Wait Until It’s Too Late
Because being busy is one thing. Making sure your law firm is financially sound is quite another.

Want to ensure that your firm doesn’t wind up like this by ensuring you’re not throwing money away unnecessarily? Just get in touch.

And if you’re not quite ready to do that, at the very least, grab a copy of my book and start reading:

www.vanessaugatti.com/book

Vanessa.