The finance function is evolving rapidly in the legal sector.
We are delighted to publish some of the key findings from Totum’s latest survey into finance functions in the legal sector, which gives detailed insights into the evolution and future planning of a department that is central to the success of the modern legal business.
The survey, conducted in early 2021, polled CFOs and Finance Directors from among UK headquartered firms with annual revenue of £20m or more. Results spanned firms in the following revenue brackets: 31% – £20 to £50m; 21% – £50m to £100m; 23% – £101m to £200m; 15% – £201m to £500m; and 10%
over £500m. The questions were wide-ranging covering all aspects of today’s finance function, including the structure and size of finance teams, key roles and emerging job titles, function-wide priorities and challenges, and the role of technology in the development of finance.
The findings make clear that today’s Chief Finance Officer (CFO) or Finance Director must wear two hats. The first one is themed future finance capabilities. The top priority for finance functions for the next two
years, cited by over half our survey respondents, is to invest in technology.
In response to another question, the majority (64%) also want to recruit ‘value adding’ roles – for example, in finance business partnering, pricing and business analysis – bringing ever-more commercial and strategic expertise to finance teams to support them to operate at the highest levels of business
The second, however, demands continuing careful management of more traditional priorities: cashflow and maintaining or improving profitability. Reducing debtor/lock-up days, improving working capital processes and educating fee earners in financial hygiene all feature in the top five priorities for today’s finance teams.
This twin role is understandable in an environment in which respondents cited their top two challenges as increased pressure from clients to reduce fees (76%) and the economic impact of Covid (42%). The pressure is on for finance functions to play a pivotal role in their firm’s success post-Covid.
With over a quarter of respondents (26%) also concerned about ‘competitors hiring existing staff’, we also need to add into the mix some rivalry over good candidates, even in this perceived-to-be most stable of
functions. In our experience, finance candidates are always in demand but perhaps even more so now, as firms begin to see an opportunity to plan once more after a year of lockdowns and uncertainty.
Other key findings include:
- Technology is a key priority for finance over the next two years. While 79% of respondent firms are planning to upgrade their PMS, a further 87% are planning more widespread technology investment during this time.
- The figures suggest that a good portion of this investment is likely to be going to upgrading a range of existing systems. But the survey findings also point to investment in new technology – for example, nearly a third (31%) are looking at robotics/artificial intelligence (compared to 5% currently using such technology) and 57% plan to invest in pricing tools (31% currently use such tools).
- Finance functions in law are planning for growth: a third of respondent firms (33%) intend to increase their headcount in an existing finance function in the next two years, with 9% planning as much as a 16-20% increase in headcount in the next year alone. A further 13% are planning to put a new team into the function.
- While 51% of respondent firms have no pricing team and are not considering one, a solid 21% are thinking about it. Given that 70% of the respondents that already have a pricing specialist or team consider
them to be ‘very effective’ or ‘extremely effective’, and that pricing is earmarked for future investment, we expect further growth/movement here in future.
- Most respondents have not relocated any part of their finance function and only 3% are considering it. Of the 23% of firms that have relocated parts of their team, the majority (78%) are larger firms generating over £201m in revenue, which are based in London (89%). Interestingly, however, the vast majority of these firms (89%) consider their relocations to have been ‘very’ or ‘extremely’ successful, which may influence followers in future.
Looking to the future
Today’s finance functions in the legal sector are significant both in terms of their size and influence on the wider firm. Finance plays an important part in every element of legal business: the survey findings show a huge breadth of finance roles requiring a wealth of operational, transactional and commercial expertise. And at leadership level, the CFO/Finance Director is a Board-level decision maker, with input into all aspects of a
firm’s strategic direction.
As the survey findings show, many firms are building new skills and capabilities, meaning that a significant challenge facing finance teams is sourcing the talent they need to maintain and grow these important
functions. Leaders will need to think creatively to ensure they can source the breadth of talent required to successfully manage the many facets of modern legal finance, including looking beyond the professional services sector for skills/talent (nearly a third of firms have made hires from outside of the professional services sector in the past two years).
Finance teams, in keeping with everyone else, have come to the end of a very strange year. Further changes lie ahead as lockdown (hopefully) continues to ease and firms address the kind of working environment they will enjoy longer term. When asked about the biggest impacts of Covid on the finance team, respondents
chiefly chose managing team wellbeing, adjusting to remote working and motivating the team – all familiar issues for business leaders across industries in 2020/21.
But specific lessons – and some positives – will have been taken along the way for the further development of the finance team (44% of respondents think that Covid has had a positive impact on billing, for instance). All this, and more, will shape next developments in the finance function. All respondent firms across all revenue brackets, for instance, are looking at implementing some form of hybrid working into the future. This will affect the workings of finance, its investment in, and use of, technology and its abilities to potentially source a broader pool of more flexible talent.
Finance leaders looking to the future of their function will continue to need to juggle the traditional remits of the function with an ever-widening commercial remit underpinned by technology. It is a fascinating and fulfilling remit in a function whose successful development is vital if it is to help drive firm-wide business success and growth.
If you would like to receive a copy of the full report, which includes all data/graphs and detailed analysis, please contact [email protected]
If you would like to know more about market trends in the finance function in law, or current opportunities for finance professionals across the professional services sector, contact [email protected]