By Carl A. Mack
Client Profiles
For law firms in the 1980s and 1990s, financial reporting was defined as "the regular printing of firm financial data to green bar paper that was subsequently bound and boxed, never to be looked at again."
Enter Microsoft Windows, relation databases, e-mail, the Internet, Business Intelligence and Business Analytics. The result — too often the only difference is the color paper the firm prints on.
Unquestionably a firm's financial system offers insight into the health of the organization. This insight should be an essential tool to better align operations with financial goals. Why is it, then, that so many firms struggle to harness this information today?
Ask a law firm administrator what management reports he or she needs to support their practice. Then ask who is reviewing this information and what questions are being answered. More often than not, financial reports are run for no good reason. Perhaps it's time for a new way of thinking about law firm financial analysis. Fortunately, we have the technology to capitalize on the data contained in our financial and accounting systems.
Today's billing and accounting systems offer numerous tools and approaches to providing visibility into firm finance. Let's call them "analysis tools."
Before we can consider a technology approach, we must resolve: What questions are we trying we answer? Are we interested in maximizing per partner profits? Are we trying to assess the viability of an office location or practice group? Are we trying to improve cash flow or limit our financial exposure?
A clearly defined set of analysis objectives is the first step in the successful implementation of an analysis platform.
Who will be the author of this financial data and who will be its consumers? If the tools used to create the analysis are too complex, then the project fails before it can really begin. If the information is in too much or too little detail or not on-point for the consumer (usually the firm's management committee), then the project has no value.
For an analysis system to be valuable, the information it provides must be easily attainable on a timely basis and must provide relevant data in a format that is meaningful to the end user.
Let's discuss for a moment the terminology that normally comes into play. A report can be defined as a static representation of data. Reports tend to be inflexible and have limited query ability. The terms Business Intelligence (BI) or Business Analytics have been making their way into the legal industry recently.
Business Intelligence is a broad term that refers to a more dynamic system of analysis that supports graphical representations of data, drill-down or drill-through functions and drag-and-drop query capabilities.
These systems are designed to provide the end user the ability to ask questions of the financial data in real-time. One would expect to be able to run an Aged AR Report to see which clients have outstanding bills that are overdue. But a Business Intelligence platform would use that as a springboard to answer questions such as, in which areas of law and in what geographies are we regularly realizing a collection rate below our acceptable limit.
One concept that is gaining traction in the law firm community is that of the financial dashboard. Simply put, a dashboard is a consolidation of various financial aspects of the practice presented in a unified, easy-to-understand format. One example: A firmwide dashboard might show the firm's cash position, bank balances, aged Work-in-Process and AR totals, the existing and future accounts payable obligations. This "business-at-a-glance" visualization can quickly draw attention to potential problem areas.
Business Intelligence platforms tend to be complex systems and often require some measure of expertise to set up and to administer. Some accounting vendors are bundling BI tools in their application suites. Embedded BI tools tend to be easier to deploy and can jump-start the firm's business analytics journey.
Other third-party tools are available for firms who have an interest in developing their own BI platforms.
Some examples are Microsoft SQL Server Analysis Server and Reporting Services, Cognos from IBM, Style Intelligence and Style Scope from InetSoft.
Since these systems grew up in the Fortune 500 space, many of these are not cost-appropriate for small businesses.
There are vendors that cater to the small business marketplace. The best place to start looking, however, is with your existing financial system provider. Most, if not all, have some strategy for serving the business analytics needs of their clients.
With a solid understanding of your goals and by choosing the right tool, your firm should be able to leverage its financial information in the same way AM Law 200 firms have for over a decade.
Carl A. Mack, vice president, financial systems, at Client Profiles, joined the management group of Client Profiles in May 2007 through the merger of Foundation Software Laboratories Inc. with Client Profiles. He and his group have been providing time and billing financial systems to law firms for more than 20 years.