How professional practices can manage rising costs

Professional practices have and continue to face rising costs across staffing, office space and the need to invest in new technologies to remain competitive. They come at a time when clients too face the same, putting pressure on fees.

Whether in legal, real estate or medical practices, longstanding challenges such as inefficient cash lock-up and effective management of work in progress (WIP), has resulted in partnerships and their practice management teams needing, now more than ever, sound financial management and long-term strategic planning.

Here are a few things firms need to consider.

Staff costs

One of the most immediate cost pressures is staff remuneration. Professional services are talent-driven businesses, and attracting and retaining skilled people means responding to a competitive employment market. Many firms have found themselves increasing salaries and benefits packages to attract and retain staff, particularly in specialist or senior roles, with the cost of the roles increasing following the recent increase in Employers’ National Insurance (NICs).

However, salary increases must be considered in the wider context of productivity and profitability. Regular benchmarking and utilisation reviews can help assess whether teams are operating efficiently and whether client work is being priced appropriately. Investing in training and workflow optimisation can also deliver medium-term cost savings.

Office space

Office costs remain another key area of concern. Even with the rise of hybrid working, many firms continue to operate under long-term leases agreed pre-pandemic. These fixed costs can be disproportionately high relative to current needs.

This is a good moment for partnerships to re-evaluate their property strategy. Downsizing, subletting unused space, or renegotiating lease terms are all options worth exploring. In parallel, firms should review whether their office space is supporting, or hindering, their productivity and culture — not all savings are financial.

Tackling lock-up and WIP

Cash flow is described as the lifeblood of a business, and for professional firms, managing lock-up and WIP is critical. Many firms have significant funds tied up in unbilled work and slow-paying clients. This puts strain on working capital and increases reliance on overdrafts or partner funding.

Improving billing discipline, tightening engagement terms and enhancing client onboarding processes can reduce the time between work completed and cash collected. Real-time tracking of WIP and aged debt, reviewed alongside client profitability, can quickly highlight issues and drive behavioural change.

What your accounts reveal

Costs such as those outlined above put significant pressure on cashflow and profitability. Firms need to be aware of their greatest cost burdens and pressures, and consider ways to minimise costs where possible to gain efficiencies.

Annual accounts offer more than a backwards-looking compliance snapshot. They can reveal trends in cost growth, margin erosion, debtor days and partner drawings. Comparing current year data against historical performance and sector benchmarks can inform strategic decisions around pricing, resourcing and investment.

However, these insights are only useful if they’re timely and accessible. That’s where management accounts come in.

Management information

Firms that invest in high-quality, regular management reporting are better equipped to manage costs proactively. Monthly or quarterly reports tracking fee income, utilisation, expenses and lock-up can provide an early warning system for cost pressures or underperformance.

Clear reporting also facilitates better partner decision-making, helping to align financial strategy with operational delivery.

Cost pressures are unlikely to ease anytime soon, but firms that combine strategic cost control with robust financial insight will be better placed to protect profitability and remain competitive.

We can play a key role, not just in preparing the numbers, but in helping you understand and act on them. By working with partners and finance teams, we can help partnerships interpret the data your accounts provide, explore management reporting, and forecast and scenario plan future growth plans and the financing that will be needed to support that.

If you would like further information or guidance on this topic, get in touch with our professional services team.