Is it time to re-evaluate your law firm’s finances? As your firm grows and evolves, it’s easy to get complacent, but don’t neglect your financial processes when...
Is it time to re-evaluate your law firm’s finances? As your firm grows and evolves, it’s easy to get complacent, but don’t neglect your financial processes when they’re due for a refresher.
Better financial management starts with the basics. Ensure you begin each financial year with a budget, which lays out your firm’s projected expenses and revenue. This should be broken down into monthly increments, so that you can anticipate your firm’s financial needs and aren’t caught short with no cashflow when you’re hit with expenses. Your budget should include ongoing costs, like staffing and office space rental, and more ad hoc expenses like conference attendance and replacing faulty office equipment.
Understanding your annual budget is the first step towards long-term planning. Once you have this fundamental element in place, you can look at what you’d like to achieve in the long term and set some broader goals, like looking to grow your revenue or open a second office location in the next five years. Knowing where your firm stands financially in the present will help you to understand what steps you’ll need to take to achieve these long-term goals.
Unfortunately, you can’t “set it and forget it” with a budget. You’ll need to track your results for each month, quarter and year and adjust it if the real numbers aren’t matching up with your projections.
If your firm isn’t meeting its monthly revenue targets, it’s important to be across this as it happens—you can’t just wait and see how things pan out at the end of the financial year. Running financial reports regularly helps you to track your firm’s performance and find solutions to issues as they arise.
If revenue falls short of your monthly projection, regular reporting means you can investigate the cause immediately and put measures in place to mitigate the issue. For instance, if the shortfall is a result of fewer leads than usual, you might need to adjust your marketing and lead generation strategies. Conversely, if you’re ahead of monthly projections, it’s worth looking at your resourcing—does your current team have capacity if their workload continues to climb?
Consider which Key Performance Indicators (KPIs) best suit your firm’s goals. While hours billed or realisation rate may be the ones that first spring to mind, these should not be at the expense of KPIs like client satisfaction, acquisition and retention, which may be more important for your firm’s long-term success.
Review your costs to ensure that your budgeted spend is still beneficial to your business. In the wake of COVID, many businesses have continued to operate with a hybrid workforce—if this is true for your firm, downsizing your office space may be a significant cost saver.
Regular reporting is one of the most important things you can do to stay on top of your firm’s financial management. LawMaster streamlines your financial and performance data with an extensive library of pre-built reports that will reduce the time your firm spends on financial management.
For firms with multiple practice areas, it’s important to track each profit centre to ensure that you have a thorough understanding of your firm’s financial performance. This will give you oversight of what your most profitable services are, and whether there are any areas of practice where you need to make changes. Tracking profit centres will also feed into your marketing and lead generation, as you may want to focus your strategy on acquiring clients in need of your most profitable services.
By strategically seeking to grow in these practice areas, you can rest assured your firm will grow in a sustainable and future-focused way.
Once your budget is in place and you’ve set up regular reporting, you’re in a strong position to plan for your firm’s future. Your firm’s overarching goals should reflect its values and mission, and financial goals will support you to achieve these.
Remember the SMART goals formula: your goals should be specific, measurable, achievable, realistic, and timebound. You can set up a regular reporting schedule to monitor progress towards these goals, alongside your other financial reporting.
Law firms aren’t immune from changing workplace norms. If you’re a firm that primarily uses time-based billing, consider whether this still makes sense for your business.
Fixed price billing for more straightforward matters can make your firm’s income more predictable, making it easier to stay on top of finances. While this may not be suitable for more complex matters, client relationships may benefit from a transparent approach to legal fees. It can be used in conjunction with the more traditional hourly rate for situations where you can’t predict the cost of services.
Automation not only reduces time spent on administration, but it can also be your secret weapon for successful financial management. Don’t lose out on billable time with streamlined and accurate billing procedures that automatically capture billable hours or fixed fees.
LawMaster’s fully integrated system captures all costs, fees and disbursements from a single source of truth, and workflow automation triggers follow-ups for outstanding debts.
Consider whether your firm has the resources you need to truly get on top of your finances.
LawMaster offers additional accounting services to enhance your user experience and functionality. Our specialist financial team can manage all your accounting tasks, from payroll to financial reports, bank reconciliations and processing of all payments and receipts. This service frees you to focus on the billable work, while we handle the day-to-day accounts processing and reporting.
Get in touch with LawMaster today to find out more about upgrading the performance of your firm.