Finance leaders in law have a vital role to play in steering their firms through this current pandemic crisis. The legal profession already highly valued its CFOs and finance directors before the coronavirus hit, as they have helped their firms modernise finance strategy and processes. But they now play a pivotal role in ensuring their firms not only survive the current lockdown, but also any continued uncertainty in the months ahead.
While day-to-day finance operations are tough enough for any business in this climate, law firms are vulnerable because considerable amounts of cash are caught in lock-up. According to a recent survey of lawyers by Legal Week, twice as many respondents thought that lock-up would now lengthen as clients take longer to pay due to their own supplier commitments, compared to those respondents who did not feel things would change. If correct, this could endanger the financial position of firms that rarely maintain large capital reserves – and yet have high overheads including salaries, systems and premises costs.
Cash flow management will be key for finance leaders in law in these difficult months. They will need to find cost savings (stopping all non-critical cash outflows as quickly as possible) and carefully budget for the months ahead when income forecasting will be fiendishly tough amid likely on-going social restrictions. Firms are already making difficult cost-reduction decisions around staffing levels including reduced hours, furloughing certain team members or asking for people to take part-paid or unpaid leave. These decisions may extend across the firm, but finance leaders will be key to determining how far such efforts must go.
To achieve optimum cost management, finance leaders will need to be able to work with partners and HR/resourcing managers to understand changing levels of work input/output – this may not be easy if fee earners and partners whose work levels have dropped sharply feel they’re being scrutinised by ‘the accountants’. But fee earner input will be more important than ever and will require careful and sensitive interaction (see below).
It will help that many firms have implemented stronger strategies in recent times to manage cash flow. In a recent trend, some of the larger firms have been hiring heads of working capital with the leadership and strategy-level expertise to improve their firm’s working capital lifecycle. Firms that have taken this approach may find themselves in a more positive position to maintain the stronger cash-flow needed in these challenging times as process and policy improvements brought about by these individuals should lead to a reduction of lock-up and debtor days.
The fact that many senior finance appointments in law in recent times have focused on strategic leadership capabilities can only strengthen finance teams’ output and added value. Many firms have recruited finance professionals that bring with them broad backgrounds from other professional services firms and beyond. They have the commercial outlook to see the big picture and help firms make the right financial decisions in the context of the broader and fast-changing political and business landscape. Although depth of experience within a law firm is often invaluable, the ability to bring ideas from outside industry may well give those businesses an edge over their competitors.
Firms have welcomed the Government’s emergency support measures including the job retention scheme, VAT deferrals and tax breaks. Many, however, are keenly aware that such support cannot be limitless. Finance professionals who play their part in shielding their firms from the worst impact of this crisis will more than prove their credentials in the upper echelons of business leadership.
Finance leaders will need to step up to manage their teams (and communicate financial issues to the wider firm) in these difficult times. Making the right decisions in terms of resourcing the finance team will be critical. Some skills will be more important than others in the months ahead, and finance leaders will need to be prepared to scale up or scale down certain areas at short notice.
Interim and contract roles are likely to become more important as firms and finance teams need maximum flexibility to respond quickly to changing circumstances. So too will be the ability to reallocate team members to different areas of the function, as required to meet specific requirements.
Personal leadership will also be key. This isn’t always an easy one for finance leaders who may be trained to a very high technical level but less likely to have received support in developing leadership and communication skills. Being able to engage a virtual team, helping team members through uncertainty, showing sensitivity and emotional intelligence, and ensuring clear/consistent communication efforts across the business – will all be critical in the months ahead.
Employees working from home will be particularly concerned to receive financial updates on the state of the business and future expectations. Meeting these needs in a transparent way without making false promises will be an important balancing act to ensure on-going buy-in and support for what may be difficult decisions further down the line.
Working in collaboration with other functional leaders in this respect will help plug holes and allow individual leaders to play to their strengths. Finance leaders shouldn’t be afraid to get support from others across the leadership team to convey difficult or complex news. It may also be helpful if firms can assign people to help coach/support members of the finance team on how to influence, advise and challenge their stakeholders when they can no longer rely on face-to-face meetings.
Finance directors, CFOs and other senior finance professionals in law have a huge role to play in the successful management of this crisis. Those who face up to the challenges and plan accordingly will be in the best position to steer their firms to brighter times ahead.
To find out more about how Totum can support finance teams in professional services firms, contact [email protected]