4 new year resolutions that every law firm finance director should make

new-year-resolution

Happy new year to all my blog followers! I hope you’re well rested after the festive break and looking forward to the opportunities and challenges that 2015 will bring.

I have been working with finance directors in law firms for many years now. When planning for the new financial year, there are a number of key areas that often crop up in discussion. It made sense to share them so you can benefit from the experience of others in your industry. Think of them as your new year’s resolutions!

So, here are those new year resolutions for law firm finance directors:

(1) Find ways to make department heads more accountable

Many law firms still treat “finance” as something that belongs in the back office and is disconnected from the “provision of legal services”. But good strategic financial management isn’t just be the job of the finance director. Each head of department should be responsible not only for managing their departmental budget, but also for understanding their role in ensuring the long-term financial stability of the whole organisation. This can be keeping an eye open for new business opportunities, or finding ways to give clients better value. Work with department heads to make sure they consider not just revenue, but also gross profit and working capital; and that they have effective compliance mechanisms in place.

(2) Start measuring / monitoring and making decisions on client profitability

A good approach to this is to undertake an audit looking at client billings over the past three to five year period (this time frame reduces anomalies caused by one off retainers) and look at actual time billed and collected by lawyer with numbers split by partners, associates, and clerks. This method is described in detail in this Law Times article. The article is Canadian but general points are all applicable in the UK.

Use information on billings from your solicitors case management software and add pro-rated fixed costs against each file. This allows you to put clients into one of four tiers:

  • Most valuable/high-profit clients.
  • High growth/greater profit potential.
  • Low growth/little profit growth potential.
  • No growth/no profit growth potential.

The results can be very surprising.

(3) Review the timeliness of management information

Monthly management reports, delivered days, or sometimes weeks after the month-end to the firm’s decision makers, are no longer effective. Information needs to be available quickly to enable actions to be taken relating to a given month’s performance, before that month is finished and it is too late. That doesn’t mean all information has to be real time – in fact real time has many disadvantages that people often overlook. But, the timeliness of information has to be appropriate to its use, and driven by the business need, not the practicality or cost of production. Solicitors software should allow you to do this.

(4) Get better value from the firm’s existing IT investment

In my experience, it is quite common for law firm Finance Directors to conclude that any and all weaknesses in the firm’s financial operations and reporting, are a result of the inadequacy of the firm’s current practice management system.

They therefore conclude that the only solution is to invest significant amounts of money in a complete overhaul and/or replacement of said inadequate system. What many firms fail to do is really work hard at maximising the return on their existing system.

What they should be doing instead is:

(a)    Identifying and addressing specific weaknesses, rather than “throwing the baby out with the bathwater”.

(b)    Investing in training, which generally gives much faster returns than investment in software or infrastructure

Cute and abstract card on New Year 2015

Cute and abstract card on New Year 2015

 

What are your new year resolutions?

Have you implemented any of the above in your company? What has most surprised you? Which financial process improvements have brought the most benefits for your company?

What changes will you be making this year?

You can tweet your thoughts to @EXENLS

 

If you’re considering reviewing your management information software and would like to discuss your options, please contact us by email or call 0845 6806 843. We can help you take a look at your existing system and see if it is fit for purpose.

Find out more about our SmartEye management information software.

 

Blog post by Graham Moore, Managing Director, Exen Legal Solutions

GM-1

 

Law Firm Practice Management System and Business Intelligence expert. Managing Director of Katchr.

If you’d like to discuss how large or small law firm software and legal financial reporting systems could help you run your practice more profitably, please give me a call on 0845 6806 843.