Most of my colleagues are lawyers who have spent years studying and preparing to practice law; so it’s not surprising many are unaware of the dynamic role of accounting, the importance of financial management and what managing a law firm involves.
In fact, in my experience, most lawyers I know are horribly adverse (bordering on allergic!) to finance and accounting, and many wince at two words in particular: trust accounting.
So, I thought I would take the opportunity to shed some light on the financial management of a law firm, and the things that I find myself being a part of, as a Finance (and Data) Manager for TSP.
The importance of financial management
Financial management is a combination of long-term strategic planning and short-term day-to-day financial operations to realise an organisation’s success.
It involves the planning, organising, controlling, directing and evaluating of all financial operations of the organisation, including budgeting, forecasting and projections, procurement of funds, utilisation and perhaps the most important – cash flow.
Financial management is critical to every organisation, especially within today’s complex business environments which are subject to constant change, uncertainty and increasing competition.
Data should be used to reliably support strategic planning
At a strategic level, this data can be transformed into valuable information to extract knowledge, insights and make decisions for the future that align with the organisation’s goals, including the cost and resourcing implications of those decisions.
For example, strategic decisions informed by data for a law practice may include decisions such as:
- Service capabilities and locations – how many lawyers to employ and where to establish offices to meet targeted financial performance
- Market position and share – who are we competing with and on what scale
- Areas of practice – will we practice multi disciplines or focus on one area
Financial planning and short-term operations consider revenue targets, projections, budgets and cash flow forecasts.
Historical data should be used to prepare your financial plan to avoid unrealistic expectations, large variations or, in the very worst case, failure.
For more information about how to harness and transform data into useful information, you can review my previous blog ‘Data driven decisions’.
What do I find myself doing?
A blend of finance and compliance tasks that satisfies my love of structure and control combined with an element of unanticipated ad-hoc exercises that satisfies my impulsiveness.
Every day is a little bit different; I really enjoy what I do. I’m fortunate to work in an area that interests me and inspires me to continually learn.
My most important and overarching goal when carrying out my day is supporting the team with whatever is required to empower and enable decision-making and advancement; ensuring them the ability to achieve and maintain success.
How does financial management differ for a law firm?
The fundamental principles of financial management are largely the same and should be applied across any organisation. But in my experience, the biggest difference for most law firms (especially in the discipline of personal injury law) is cash flow.
Lawyers don’t get paid immediately for professional services provided. Achievement of deserving settlements for clients can take upwards of 18 months. Some cases can take longer than this through external factors beyond the practices’ control; factors unique to the client (medical improvement and recovery) or macro-economic factors (Government).
However, an even more significant and consequential difference that is unique to our firm is no possible application of extensively used metrics of utilisation.
That’s right. Our law practice does not time record.
But is time recording key to success? I’ll discuss this next time…
As published in Lawyers Weekly.
Finance & Data Manager
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