The budgeting story: partners know best

Asking the partners to build the budget could get you hot under the collar, but they know their business better than anyone.

By Claire Hafner, Eversheds

Another year, another budget, and another challenge for law firms to agree their key objectives for the next three years, with a more focussed emphasis on the next financial year.

If it were not enough of a task for the management team to agree the financial and commercial objectives for the next 36 months, there is the added debate surrounding what the start point actually looks like and the key milestones required to get the firm to where it wants to be.

With partners focussing on successfully closing their year-end results, the executive team, and the financial director (FD) in particular, are left facing the following yearly dilemma:

Should they produce the budget and ‘sell it’ to their partners in order to speed up the process, or;
Should partners be tasked to build the budget themselves, with the support of their finance team – the approach adopted by most companies in the ‘real’ commercial world (ie, let the partners do the work)?

The answer has got to be a resonant ‘no’ to the first option, despite its obvious attractions. And the thought of getting legal advisers to put their thinking caps on and develop their own budget from scratch, with the support of finance, is enough to get any FD hot under the collar, which explains why this approach is not favoured in most law firms.

But getting the lawyers to tell their own story has numerous benefits:

Lawyers are best placed to understand the strengths and weaknesses of their teams and service offerings, and are therefore best placed to understand whether they can meet their clients’ future demands, at an acceptable price;
They are generally very good at drafting and assessing key risks and opportunities – prerequisites during a successful budgeting process;
Lawyers, like any other business people, are more likely to believe and buy into their own story than one imposed upon them, especially by non lawyers;
The budgeting process becomes easier year on year, as the lawyers add successive instalments to their own story.

The role of the FD and the finance team becomes that of proof reader and background provider, listening to the story and querying its key strands and developments, and feeding the storyteller with tangible data, such as headcount numbers and related costs; resource mix; pricing and revenue projections; and sensitivity analysis to assess risks and opportunities.

Once each team’s story is well balanced and challenging enough, it’s the job of finance to bring all the strands together to create a credible budget. Of course, it is not an easy process. It takes time and understanding to generate the inspiration and trust required between all parties for the story to become credible, both from a legal adviser standpoint and a finance perspective. But once owned by the key protagonists, it has a much stronger chance of delivery and, ultimately, success.

Claire Hafner is finance director at Eversheds. She can be contacted at clairehafner@eversheds.com