As most businesspersons know, the hard part of the business is not in making a profit. There are a lot of businesses out there where you can make 30% or even 100% of profit if you look hard enough for them and work for it. I actually believe those businesses which contribute to the real economy in contrast to the false economy is the business which give you good returns. Even if you sell food by the roadside, if you price your goods at a price which can cover your cost and then some, you will be making a profit.
The hard part of a business is managing cashflow. Managing cashflow means that you get paid on time for all the things that you have supplied by the person you supplied your goods to.When you work in the service industry, the equation become different. People will easily say that you do not have any cost to borne and people assume you do not have any overhead. Managing a legal firm for the past 10 years, I was presented this scenario so many time. People always assume a legal firm do not need any overhead to run it. They forgot that the people who service them, make sure the filings for documents are done on time and represent them in many situations are all 'cost' which someone (the legal firm) has to bear.
When a legal firm gets any payment from its client, the law requires for certain type of files, there is a clear division between the amount which you will use to finish the job that you have been tasked to do and the amount which will be your profit. The problem starts when your client asked for you to advance the money needed to complete the job first before they make any payment. As the files pile up, if you do not have any reserve cash, as is the case for most of legal firm in Malaysia, you will start to feel the burden of having to manage your firm with negative cash flow.
After 10 years of managing to balance out my legal firm's cash flow with profits that we make year after year that had me survive for so long, the pinch has started to crept in...