Finance directors play a critical leadership role in the legal profession, supporting their firms to adapt to sophisticated and changing client expectations while maintaining internal profits and building the right financial platform for growth.
But with firms looking more broadly – including outside the profession – for the right finance expertise, it has never been more important to understand the challenges of heading up the finance function in law.
We look at five critical areas that the finance director will need to tackle.
- Maximising profitability: PEP is still an important measure for benchmarking law firms and helping to attract strong laterals. Maximising PEP is very important and so an understanding of profitability and where it is made/lost is vital across all levels, from matters and clients, to operating units, departments and locations.
- Working capital management: Managing lock-up remains a vital area for FDs. Trying to modernise working capital procedures and controls across the whole revenue process from time capture to cash receipt to cashflow management against established cultural practices is a continual challenge.
- Pricing and recovery: Clearly getting pricing right is key to maximising profitability. The hourly rate is slowly disappearing as clients want more flexibility and creativity in pricing that works for both parties. The key is to be competitive without putting price pressures on the organisation. Alternative pricing strategies and non price-related 'added value services' such as secondments are currently in demand. Pricing requires effective matter gearing, cost management and strong accounting systems and controls that continue to review and monitor performance against pricing budgets – as well as ongoing discussion with the client!
- Managing the strategy of the firm: The FD needs to be a supportive but realistic voice in terms of managing the strategy of the firm. On the one hand, the FD as a board member needs to be able to help the partnership deliver strategic objectives but at the same time needs to be the 'level' head when trying to manage financial strategic aims within the available resources.
- Managing overall control environments: The finance function covers a huge variety of areas in law firms, from operational day-to-day finance transactions; regulated client ledger accounting and SAR rules, through to partners’ current accounts and tax reserving. It is essential that there is an effective control environment operating at all levels across the firm and that the FD has a strong and competent team behind them to manage these controls.
As the role of finance director in law rapidly evolves, to manage the many challenges it brings requires a broad skill-set. The FD needs to be someone with authority, as well as diplomacy, to bring together partners and department heads so that everyone buys in to the need for sound financial practices and systems.
But, crucially, they also need to have vision. Today’s finance director must be able to see the bigger picture, and recognise the key part they play in delivering competitive advantage.