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Look after the pennies and the pounds will look after themselves

16th December 2015

Very few legal firms control their overhead costs on an on-going basis and by not doing so they miss out on some straightforward opportunities to increase their profitability.

A business’s drive is, of course, to increase turnover however only a fraction of that turnover is profit. When reducing your overheads every pound saved goes on you bottom line. This means that if you have a 20% profit margin you would need to bill £5,000 for £1,000 profit, or alternatively you could manage your suppliers more closely and make £1,000 profit without billing a penny more.

In general your firm will fall into one of three categories when is comes to managing costs in your business.

  • Those who don’t think it worth doing
  • Those who do it every 3,4, or 5 years when they remember or when cash-flow is slow
  • Those who do keep an eye on the costs on a regular basis

As to which category you fall into is dependent on the management of your firm. Good cost management comes from the top downward, it has to be part of the culture of your business not something that you have a go at when business is slow.

Of course implementing a new culture within a business can be difficult, people don’t like change and any initiative to cut costs can be met with fear of job security. However, good communication with staff to explain that on-going cost saving will lead to a more secure company, greater profits, and potentially higher salaries can help to change that culture. As can offering incentives to staff for coming up with cost saving ideas.

So, where is the low hanging fruit in your business? Where can you start to make savings quickly?  Here are ten areas of overhead cost to look at and make instant savings –

  1. Over 60% of legal practices in the UK use the same office supplier. The pricing structure for every single firm is different, and it is not the largest firms that pay the best prices! Why not challenge your supplier on prices, go out to tender, look at non-branded alternatives.
  2. When did you last review the prices you pay for your telephone calls? One of the largest areas of expenditure will be calls you make to mobile phones. The wholesale cost of these calls has dropped by 50% in the past 2 years and should be reflected in any new deal you sign up to.
  3. 98% of all UK businesses do not know when their gas or electricity contracts renew. If you fail to deal with your renewal you could be paying prices up to 3 times your previous rates.
  4. Some legal practices are paying 4 times as much for the same quality letterheads and business cards as their competitors. Don’t be a relationship buyer, test the market and see what other printers would charge you for the same. Be sure to ask any new printer what their set up charges would be.
  5. The Royal Mail has 67 different discount schemes in place that can save you up to 50% on your postal costs. Do you know what these are and which ones apply to your business?
  6. Set your copiers to always print to black and white, with the option for colour if required. A colour copy costs 10 times that of black and white.
  7. Do you get best value from your franking machine supplier? Don’t automatically let them roll you into a new contract as it could include a cost to settle your old contract where you will be paying interest upon interest. Also don’t let them use potential savings on postage as a way to justify an increase in your monthly lease costs.
  8. An incorrectly structured archiving contract can cost a legal firm up to 50% of the annual cost just to move the contract to another supplier. You must know what liability your contract is building and look to run all items within the contract to a single end date.
  9. All the major UK banks have preferential banking rates for law firms, but not all law firms are on those rates. Check to see that you are on the right rates and don’t be afraid to speak to other banks and see what they can offer.
  10. Just renewing your firm’s mobile phone contract without the necessary analysis of usage can lead to an overpayment of 30% over the course of a 2 year contract. Make sure a proposed new contract reflects your usage, don’t get drawn into big bundled tariffs that you will never use as you will still have to pay for everything in that bundle!

These are just a few of the many ways to reduce your costs in your business and increase your profits. Don’t worry about which one to start with, just pick one area of cost and challenge your supplier!


Andy McCorquodale is a Director of Spiral Group, specialists in overhead management in businesses. Spiral advises hundreds of legal firms in all aspects of procurement.

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