Budgeting in a down economy

Law firms, irrespective of geography or time zone, have gained a new appreciation for budgeting and the importance of business planning during these tough economic times. How to develop accurate business plans – quickly and efficiently – in a streamlined and collaborative manner is at the top of law firm agendas across the lands.

Legal financial directors are under increasing pressure to provide managing partners and executive teams with accurate, timely and relevant business-planning information. Given the ongoing economic uncertainty, law firm leaders need accurate business plans that reflect a constantly changing set of information and variables.

Traditional manual, spreadsheet-based budgeting processes require finance teams to pull together many iterations of the same budget, continually updating the numbers to reflect partners’ ‘what if’ business scenarios: closing offices, adjusting firm leverage, reallocating billable hours, and more. Financial managers and decision-makers can continue to suffer through this labour intensive budgeting process, or they can explore other options.

Budget with technology

Modern budgeting technologies automate and streamline budgeting and forecasting processes, replacing existing time consuming, spreadsheet-based approaches to planning. Such solutions quickly generate accurate, detailed business plans, helping firm leaders take control over the factors that affect their firm’s profitability and performance.

Based on what leading law firms globally have done by introducing budgeting automation, several standard benefits can be applied to budgeting technologies:

Decreased planning costs and reduced budget- development cycle times

Firms are using budgeting systems to help automate their existing manual, spreadsheet-based budgeting process as well as track all of their costs in more detail – including fee-earners and expenses. Take Jones Day, for example, a top-20 Global firm that, pre-automation, took several months to produce the firm’s annual budget – a complex planning process involving more than 75 employees around the world, including non-billable partner time. By introducing a budgeting system (and integrating it with the existing practice management application), Jones Day shortened its business planning process by weeks and has been able to start the process much later in the year, enabling the use of more complete financial information at the start of the budget season.

Key functionality – such as automatic data loading from financial, payroll, and human resources systems – ensures the fast, accurate transfer of data to budgeting software, even from spreadsheets. Such budget solutions further streamline business planning by performing automatic calculations and allowing mass updates for universal changes, such as increasing salaries by a certain percentage or allocating fixed fees across employees.

Improve budget accuracy

One of the big lessons learned by firms implementing budgeting systems, centre around the process of providing actionable data and the importance of working with sound and accurate information coming from one source. What good does budget reporting do if the data is inaccurate and outdated? Once budget accuracy is assured, delivery of real time data can be leveraged to improve the focus of partners on their top clients and increased the amount of revenue generated.

Year-round forecasting

Modern budgeting tools include robust forecasting functionality, enabling firms to convert annual, static budgets into dynamic, year-round planning and forecasting tools. For example, with the help of automated budgeting systems, firm finance directors can enter revenue assumptions that get pushed down to cost centres for automatic calculation of work in progress, accounts receivable and cash received, providing dynamic ‘what if’ forecasting scenarios. By integrating with other systems and enabling true collaboration among a variety of firm budgeters, the forecasted information and the timely delivery of actionable performance metrics gives firm executives a strategic competitive advantage.

Law firm financial directors can regain control over uncontrollable economic realities by taking a closer look at modern budgeting technologies. Being in the unenviable position of doing more with a lot less, finding proven methods of shortening budgeting and business planning cycles, while providing more accurate and timely business intelligence to law firm executives, should be a welcome development. In addition to leveraging budgeting systems to help shore up firm profitability and increase visibility of key performance indicators, the natural consequence of automating and streamlining said budgeting and business planning process is the establishment of law firms that are professionally operated like businesses with all the related checks and balances.

David Thorpe is general manager, EMEA at ADERANT and can be contacted at david.thorpe@aderant.com