Overcoming the finance challenges in international law
The legal profession would be the first to admit it hasn’t always been a leading sector when it comes to utilising new technologies to help it improve its planning, budgeting and forecasting activities. But things are changing, and specialist Financial Planning & Analytics (FP&A) tools are starting to be adopted.
So where exactly are finance teams struggling?
To shed light on the issue, here are five common pain points for FP&A Managers operating in international law firms:
Five key challenges
1. Global revenue forecasting
Trying to forecast revenue with a varied client base and across different geographies is a complex task. It’s made more difficult by having to consider varying billing rates, the complexity of legal engagements, and the intricate matrix of international rules and regulations. To operate effectively you need to understand the context of each client, local market conditions, and the latest legal trends to predict the timing and size of client billing accurately. Let’s not forget the multitude of billing practices and revenue recognition rules across jurisdictions, adding further layers to this complex task.
2. Expense management and control
Ensuring cost discipline while not compromising on the quality of legal services is no easy feat. Forecasting expenses is like piecing together a complex puzzle – every component matters. You need to consider office rentals, compensation and benefits, professional development, technology, and marketing expenses, among other factors. The challenge intensifies when you’re tasked with identifying cost-saving opportunities, vigilantly monitoring expenditure against budgets, and optimising resource allocation.
3. Exchange rate volatility
The simple act of converting billings from a myriad of foreign currencies into the firm’s reporting currency can feel like navigating a labyrinth. This process, coupled with managing the uncertainties of exchange rate risk, adds an extra layer of complexity to budgeting and forecasting. The stakes are high. To overcome this challenge requires not just an understanding, but an intuitive grasp of currency movements. It’s about making educated guesses, using suitable exchange rate assumptions. But even that isn’t enough. It’s crucial to deploy the right blend of hedging strategies to shield the firm from potential financial storms. The objective? To minimise any unforeseen financial impacts that could seriously impact the firm’s bottom line.
4. Financial consolidation
Consolidating financial data from various global offices and legal entities can be complex. Each office may have its own accounting systems and practices, making it challenging to standardise financial reporting and ensure data accuracy and consistency. The finance team needs to establish robust consolidation processes, address intercompany transactions, eliminate currency translation issues, and provide meaningful financial insights for decision makers.
5. Revenue recognition complexity
Legal engagements might involve retainers, contingent fees, hourly billing, and other complex fee arrangements. Determining when and how to recognise revenue under different accounting standards (e.g. IFRS or GAAP) can be complicated, especially for long-term engagements, or those involving multiple milestones. The FP&A team needs to work closely with legal and accounting teams to ensure accurate revenue recognition and provide reliable revenue forecasts.
Overcoming these challenges
The technology finance teams choose to work with is key. It means choosing a trusted system of record or ledger, alongside ensuring important financial data – linked to planning and forecasting – is easy to access and analyse. Ensuring flexible, cloud-based corporate performance management tools are in place will add strategic value to the finance teams and allow them to optimise their management of the business, provide assurance to auditors and regulators and overcome core challenges to drive success.
However, to address the challenges outlined above is not purely a question of technology. Successful finance teams need deep domain expertise in the legal sector; the ability to remain up to date with the latest accounting standards and regulatory requirements; and effective communication skills to collaborate with partners and stakeholders. Collaboration between finance, legal teams and operational staff is especially critical in ensuring the firm operates as efficiently and effectively as possible in a highly competitive market.
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