Here is a cautionary tale: A mid-size law firm, well respected in its industry, was ambitious and eager to grow. Their finance team, however, was running on outdated systems and using inefficient accounting processes — leading to a lot of unnecessary manual effort, delays in reporting, and errors. As a result, the firm’s partners and CFO struggled to get timely and accurate financial information. The finance team missed billings, were unable to assist partners in tax planning, and overall did not have a clear picture of their firm’s performance.

If they wanted to be successful in growing, they needed a financial overhaul — one that would clean up the books, establish better processes, and give the team the resources they needed to thrive.

This is not just one particular firm’s story, but rather a pattern that has become more frequent with many law firms. Chronic underinvestment in a firm’s finance and accounting function compounds over time. Teams may think they are saving money by not overspending on finance, but not investing in your finance function comes with its own costs. The longer a firm waits to address its finance challenges, the more inaccurate (and therefore useless) the books become, incurring more costs to clean it all up down the line.

In this post, we will discuss the very real costs of not investing in your firm’s finance function. If your firm is currently facing challenges resulting from this kind of underinvestment, it is not too late. By focusing on long-term solutions, rather than temporary fixes, you can help ensure your firm’s financial success.

The real costs of not investing in your law firm’s finance function

Over time, a combination of inefficient processes, manual systems, and a lack of investment in the finance team can build up, leading to issues including:

1. Disconnected systems: No integration between front-end (case management), back-end (billing), and accounting systems. This can lead to inaccurate and duplicated data, as well as needless back-and-forth between lawyers and finance team staff.
2. Inability to determine operational efficiency based on fee model: No in-depth financial reporting to break down profitability by case type or client fee model, making it difficult to determine which kinds of cases are most profitable for the business.
3. Lack of visibility into operational and other financial metrics: No clear overview of how the business is performing in real time. Any financial insights into performance come late, if at all. Additionally, partners do not have a clear understanding of their equity status or income for tax planning purposes.
4. Delays to month-end reporting: Manual processes and reconciliations that prevent the finance team from completing month-end reporting within the expected timeframe. This means the firm can only understand their performance retroactively—they are responding to situations after they happen and are not able to proactively plan ahead.
5. Decisions being made with incomplete data: Without a full and clear picture of business performance, the CFO and partners end up making critical decisions based on inaccurate or incomplete data. This may lead to false assumptions, missed opportunities, and a constant state of reactivity.
6. Delays in providing information to meet tax deadlines: Without clear insight into the business performance and how it impacts their individual incomes, partners are unable to adequately prepare income tax projections for their quarterly estimated tax reporting.

How to recover from finance underinvestment and become proactive

Citrin Cooperman’s Business Process Outsourcing team utilizes an effective three-step process to help law firms get their finance function back on track.

Step 1: Initial assessment

Our team conducts an initial evaluation of the company’s internal accounting processes, including a review of the current reports being provided to management and key processes. After that, we provide recommendations for greater efficiency, including best practices for reporting based on similar clients, documentation of processes (including responsibilities and oversight controls), and a month-end close checklist that ensures consistency and timeliness. These recommendations go into a finance roadmap, which we will start to implement in the next phase.

Step 2: Onboarding

Following the finance roadmap we created, we set up any new technological systems (or integrations between existing ones), establish policies, procedures, and delivery expectations, and develop new reporting packages tailored to your firm’s needs. We may work with and upskill your firm’s existing finance team to achieve these goals or bring on some of our in-house specialists to support these efforts.

Step 3: Operating

We provide ongoing support to your finance operations, as needed. This may include supporting the weekly/monthly close or providing ongoing reporting and analytics assistance. At this point, the finance function should be running smoothly and we simply focus on providing incremental tweaks and improvements as needed.

The results of reinvesting in your finance function can be transformative

By following this process, we can address the main costs that can come about as a result of underinvestment in your firm’s finance function and set your firm up for long-term success.

Expected results include:

1. Fully integrated systems: We establish connections between the front-end case management and back-end billing and accounting systems so they are compatible with each other. All tech tools communicate with one another, resulting in data that is consistent and reliable.
2. Improved visibility into various client fee models: We help set up reporting that allows your firm to break down gross margin by case — making it clear what types of cases and fee models are most profitable for the firm and which are not worth pursuing.
3. Clear visibility into operational and other financial metrics: We establish important key performance indicators (KPIs) and reporting practices that show how the business is performing in real time, so management can plan and make adjustments. This also makes it easy to pull segmented profitability data by various categories (billing model, realization, client).
4. Accurate and timely month-end close: With new processes and procedures in place, we are able to achieve a month-end close within fifteen days of month-end or less.
5. Decision support tools give management proper financial visibility: Management is able to take a forward-looking approach with proper decision support. For example, budgeting and forecasting allows for proactive decision-making related to hiring, bonuses, and growth.
6. Partners have a clear picture of their equity and income: With clear insight into how the business is performing, partners have a clear picture of the effects on their equity and income. They are able to plan ahead for tax time and submit accurate quarterly estimated tax reports.

All of the above also results in improved accounts receivable turnover metrics, gross margins, and cashflow, as well as a reduction in hours dedicated to repetitive administrative tasks and training.

Avoid preventable costs by investing in your finance team today

Underinvesting in your firm’s finance function can lead to challenges that build up and incur preventable costs over time. While the best option is to proactively prevent these issues through strategic investment, it is never too late to reset.

Please contact Melissa Davis at mdavis@citrincooperman.com or Mike Zyborowicz at mzyborowicz@citrincooperman.com to discover how our Business Process Outsourcing Practice can help your law firm overcome the costs of underinvestment and fulfill your firm’s full potential.