After global banks almost brought down the economy, it seems unfair small law practices should be under the financial microscope. Kevin Cooklin of LACAS explains…
"There is a critical need for sole practitioners and two to five partner firms to have access to real time financial information," explains Kevin Cooklin of oursourced legal accounting outfit LACAS. "Lawyers can no longer just provide a high standard of legal services to their clients but must now demonstrate they can run a commercially viable business whilst being risk aware."
Citing the Solicitors Regulation Authority's identification of current, emerging and potential risks, Kevin points out that the SRA's emphasis on firms' finances and inadequate exit strategies means at least 50 firms are facing an intervention, while a further 2000 are under scrutiny having been targeted as a result of financial instability. "The SRA expects firms to recognise the need to adapt their business model to market conditions to ensure they are commercially viable," adds Kevin. "Financial difficulties and mismanagement are likely to lead to intervention by the SRA. It should be noted that 30% of interventions have resulted from suspected dishonesty and accounting rule breaches. Once the SRA does intervene the extensive costs of the intervention will be borne by the failing firm who will have no control over the process."
So what is expected of firms and how can safeguards be implemented? "Good management information, adequate budgetary control, good cashflow, financial planning, business acumen and the ability to understand profit generation are all pre-requisites to survive in this economic climate," Kevin explains. "The aim should be for partner drawings to remain within profit margins and overheads to be reduced via expense reduction analysis."
"Firms that outsource their accounts function can develop sound financial control and forecasting (cashflow, budgets and targets). Reporting, monitoring and advising on Key Performance Indicators helps the firm identify financial risks proactively. With postings done in real time, bank reconciliations regularly undertaken and VAT calculations and payments done promptly, the firm can now concentrate on moving forward and serving their clients effectively".