Feeling healthy?
Finances make or break the success and future potential of any law firm. Cash remains king for law firms looking to flourish and prosper. With the end of the tax year looming, now is a good time to assess the true financial health of your firm.
A sound financial base is vital to any firm; strategic decisions based on inaccurate or incomplete information are doomed from the outset.
Allocating sufficient importance and resource to getting the finances of your firm right, and making sure your key team members fully understand the information being prepared – and reviewed – allows firms to be agile enough to make sound commercial decisions.
Data from the Solicitors Regulation Authority shows that firm closures outstripped firms openings between August 2018 and August 2019 – and over half of these closures related to cessation of operations rather than mergers or acquisitions.
Should you worry? No, but be proactive. Get the right systems in place now. The current climate means great opportunities for existing firms; the more robust your financial systems and processes the better placed you are to deliver to your clients and thrive.
In light of the new accounts rules coming into force, firms need to have systems and controls in place to ensure compliance. While it’s not a requirement, setting out written financial management policies is advisable – this helps your staff understand what’s expected of them and why this is important; it helps demonstrate compliance with the rules and encourages best practice across the firm, building a culture of financial awareness.
Designing a financial strategy that aligns with the firm’s long-term goals and short-term budgeting requirements is critical. Having a clear vision of where the firm is headed is needed to ensure the strategy is meaningful and of use. Is there a desire to sell the firm in the foreseeable future? Is this a firm you plan to stay in and develop until retirement?
Budgets looking forwards (for a minimum of 12 months) should be drawn up, and actual performance should be monitored against these. Without a detailed budget in place, it’s very difficult for a firm to understand how vulnerable it is to changes in fee income or rising overheads. A rolling cashflow forecast should also be incorporated into any financial management pack.
Regular monthly financial reporting is needed, with balance sheet reconciliations performed and reviewed to ensure no nasty surprises will be found moving forwards.
Always plan for the unexpected. A healthy firm should have access to sufficient capital and cashflows to be able to fund the firm for the foreseeable future, and to allow it to be agile and responsive as and when needed.
This month’s take homes? Keep challenging your finance team to prepare more accurate and relevant management information. Make sure your team understands what it’s being presented. Ensure your financial reporting pack is comprehensive and useful, including budgets, cashflow forecasts and balance sheet reconciliations.
Our experts and our comprehensive free guide – The roadmap to your financial future – can assist you. The guide is available at www.macintyrehudson.co.uk/publications/articles/the-roadmap-to-your-financial-future
