Law firms, like any other business, need to identify their niche in the marketplace and construct their strategy accordingly. However, this doesn’t just extend to their marketing and operations but also their finance. Firms need both a financial strategy (to support their business model) and financial control procedures in place (to monitor and report on their financial performance and current position).
Understanding this vital financial management component is crucial to a law firm’s survival and success, creating a robust, sustainable business model that can withstand the industry’s challenges.
2. What is Financial Management & Where Does One Start?
Financial Management is the all-embracing term that ensures that the firm has enough cash (or borrowings in place) to carry out its planned activities and that there are effective and efficient controls and reporting in place to measure, monitor, understand and act on actual performance. It usually starts with producing a trading forecast showing the profit or loss of the firm’s planned activities and the cash consequences of this.
From this forecast, one can compute the amount of overall cash needed, be it capital, borrowings, reserves etc and discuss with partners and funders to put this in place. By undertaking a calendar forecast and building in wip-days and collection forecasts, one can identify any period shortfalls and plan accordingly.
With an agreed and fully funded forecast, one then puts the ‘control’ element into place to record, monitor and report on performance against plan, and by also continuing to forecast ahead (given the latest circumstances), one can adjust strategy or planned actions/expenditure to deal with deviances to plan – before they happen and one runs out of cash!
3. Why is Financial Management important for Law Firms?
At its most basic level; Financial Management is a strategy and process to ensure that a firm does not run out of cash. And with most tasks, it is possible to do it badly, as well as doing it well. Undertaking good financial management will significantly enhance a firm’s ability to navigate any number of business challenges, as one is always on top of the numbers and also aware of likely future issues; and hence able to take timely positive action, as opposed to untimely reactive measures (usually with poor results).
Hence, having the correct processes in place and the right financial information to hand is vital for a firm’s financial stability and business viability.
Top Tips for the Successful Financial Management of a Law Firm
Setting The Foundations for Solid Growth with Industry Expert Support
At Playfair Partnerships, in association with The Strategic Partner, we understand the pressures that can often be associated with managing the finances of a busy and successful law firm. We also understand that many lawyers are not accountants and often lack finance training or background. Focus elsewhere can sometimes mean that keeping on top of a law firm’s financial management is overwhelming.
The Playfair Financial Business Plan service allows your firm’s management to have your own specialist finance team without the full-time employment cost and buying only the quantity and skill level required to undertake the each task.
About Playfair Partnerships
Playfair Partnerships is a business advisory firm with over 30 years’ experience in offering finance-led advice to a broad spectrum of clients and with specialist knowledge of the legal sector. We offer several different services to law firms, including a Financial Health Check, Financial Business Plan, Full Financial Review, Financial Outsourcing, and Business Recovery.
Playfair’s initial reputation was earned in the business turnaround environment, and hence in addition to our Financial Management services, we have extensive experience in dealing with businesses in distress or needing support and can spot any early warning signs, preventing potential problems from developing into more significant issues.
Thanks to our knowledge and breadth of services in the legal sector, we will work quickly to support your firm. Using Playfair’s muti-tired integrated and proactive approach, you gain anytime access to the level and volume of resources you need without having to bear the costs and complications of full-time staff.
If you want more information about anything in this article or want to know more about how Playfair Partnerships can help you, please get in touch with one of our team on 0203 911 9710 – our Financial Management team will be happy to talk to you.