The Guide to Outsourcing Finance: How Law Firms Can Take Control of Their Finance Function

The Guide to Outsourcing Finance: How Law Firms Can Take Control of Their Finance Function

The biggest finance challenges facing law firms today

AMID AN ACUTE FINANCE AND ACCOUNTING TALENT SHORTAGE, LAW FIRMS

STRUGGLE TO ACHIEVE THE FINANCIAL REPORTING THEY NEED TO MAKE INFORMED DECISIONS — BUT THERE IS A BETTER WAY.

For law firms, timely, accurate financial reporting is paramount. Partners’ compensation is tied to the success of their firms, so they need up-to-date metrics to understand their firm’s profitability. Quarterly income estimates are also critical for tax compliance purposes.

With nearly 90% of companies having difficulty filling finance and accounting roles, law firms are struggling to get the support they need to develop a mature finance solution.

One solution gaining popularity is outsourcing your firm’s finance and accounting functions. When you hear about accounting outsourcing, you might think about specialized legal billing services or your tax accountant closing out the books to prepare year-end tax returns — but in reality, it is so much more.

We will explore all the services you can now effectively and seamlessly outsource and how doing so can improve your firm’s strategic position.

Why law firms should consider outsourcing finance

1 ACHIEVING A HIGH LEVEL OF PROFITABILITY DEPENDS ON TIMELY, ACCURATE BILLING

The key to timely billing involves creating processes that include a timely submission of hours with a responsive back office that can generate accurate billing. Law firms need to build out a finance and accounting team with an understanding of the specialized formats and technologies used in the legal profession, and that can support the traditional monthly accounting processes.

2 BEYOND BILLING, FIRMS NEED DECISION-SUPPORT CAPABILITIES

Instead of just looking at financial and accounting metrics on a monthly or quarterly basis, mature law firms are looking at key metrics weekly. A mature finance function allows partners to regularly check actual results against their budgets and forecasts to understand whether the business is performing as expected. This allows firms to be responsive and ensure they are running efficiently and profitably. Examples of decision support tools include:

•Benchmarking: Gaining insights into how your firm stacks up against its competitors.

•Budgeting: Establishing an annual budget and routinely assessing how your firm is operating within that budget.

•Job or service line profitability: Understanding what is driving overall profitability by gaining deeper visibility and insights into job or service line profitability.

•Cash management: Working with a team that will help you manage cash flow and limit costs associated with ineffective cash management.

3 MEETING THESE NEEDS IN-HOUSE CAN BE DIFFICULT AND INEFFICIENT

Technology is changing at a lightning pace and it is more difficult than ever to hire in-house talent that has the capabilities to ensure your firm is keeping pace. Your firm needs staff who can select and manage technology that integrates seamlessly between case management, time keeping, and accounting/reporting functions. It is not just a matter of finding qualified accountants — you need industry professionals that can implement efficient processes to improve and manage all accounting and finance related functions including enterprise resource planning (ERP) platforms, reporting, and tax benefits.

How to outsource strategically

For many law firms, outsourcing is more efficient and effective than hiring full-time staff. Choosing an outsourcing provider that specializes in the legal field gets you immediate access to experienced finance staff who can support the unique nuances of legal billing, in addition to the traditional monthly accounting and tax compliance processes.

Outsourcing is also flexible, providing your firm with access to specialized talent on-demand and allowing you to scale up or scale down your team as needed. This not only allows you to access more advanced finance staff on an as-needed basis (such as a fractional CFO) but also lets you effectively manage a key overhead expense.

Outsourcing is growing in popularity: According to a recent report, 78 percent of finance and accounting managers in the United States are planning to increase their use of outsourced professionals, a number that has only been growing.

But not all outsourcing services are created equal. Some can be true strategic partners, while others can only take a few recurring tasks off your plate. We will explore the options in more detail below.

Companies that embrace the open-talent model get their work done just as well as those that use traditional staffing models — but four to five times faster and eight to 10 times more cheaply. — HARVARD BUSINESS REVIEW

Legal billing and bookkeeping services vs. full-service outsourcing

LEGAL BILLING SERVICES

Recently, specialized legal electronic billing (or e-billing) services have proliferated, promising to eliminate the pain of late payments and make billing a simple, streamlined process. But while they might be able to follow the Legal Electronic Digital Exchange Standard (LEDES) formats and get you paid, they typically fail to connect the financial puzzle pieces in a meaningful way — leaving you without the real-time financial results your firm needs to succeed in today’s competitive environment.

LEGAL BOOKKEEPING SERVICES

Outsourced bookkeepers provide basic accounting services. They will balance the books and provide a standard balance sheet and profit and loss (P&L) reports. To keep their services low-cost, they standardize their services and technology platform across their clients and try to keep those systems and processes consistent across their client portfolio.

FULL-SERVICE OUTSOURCING

A full-service outsourcing model is custom tailored to your firm’s needs. Engaging a solution like this can help build better processes, achieve a deeper and more insightful level of financial decision-making, and identify and integrate the right technology to help your firm achieve faster, more accurate reporting. An outsourcing provider can bring in industry specialists as needed to support or augment your team, stay current on the latest changes to operating best practices, and help train and upskill your existing finance staff.

OUTPUT

Invoices clients and collects payment on your behalf

TECHNOLOGY

Uses your existing tech stack or onboards you onto a basic system

STAFF

Employs lower-level staff to perform routine tasks

GOAL

COST

Provides a low-cost solution for simple businesses

Lower cost for a canned solution

Provides a standard monthly balance sheet and profit and loss (P&L) sheet

Uses your existing tech stack or onboards you onto a basic system

Employs lower-level staff to perform rote tasks

Provides a monthly deliverable that offers decision support, including financial planning and analysis deliverables

Creates a customized technology stack and processes based on your specific needs, including system selection and integration

Employs highly specialized professionals who can provide expert advice, training, and best practices tailored to the company and its industry

Provides a low-cost solution for simple businesses

Lower cost for a canned solution

Provides mature finance capabilities to fast-growing firms

Higher cost for a tailored solution, but considerably cheaper than the multiple full-time roles otherwise needed to achieve these capabilities

While it is true that not every firm needs to strive for the highest level of financial maturity, not investing in your firm’s accounting function can put you behind your competitors and have costly implications in the long run.

If all you need is someone to handle billing or balancing the books, legal billing or bookkeeping services can be a cost-effective option. However, if your law firm has multiple partners or any level of financial complexity, you need much faster and more in-depth reporting to be able to make timely, well-informed decisions for your business. An accelerated month-end close, more detailed processes and reporting, and regular forecasting will enable you to get paid, maintain a clear picture of partner equity, and optimize your profitability in the long run.

Choosing a full service outsourcing provider can help your firm reach financial maturity and achieve its strategic vision, and that is what Citrin Cooperman’s unique solution offers.

The Citrin Cooperman solution

Our solution to outsourcing finance and accounting allows us to provide all of the capabilities our law clients need as they manage, grow, and evolve their businesses. We help your finance function become more efficient and effective through people, processes, governance, technology, and data.

Our outsourcing clients typically go from slow, manual processes (a level one or two on the scale below) to fast, in-depth reporting in about 60 days.

PEOPLE GOVERNANCE

TECHNOLOGY PROCESSES

DATA

Disconnected people and processes

Ill-defined roles and responsibilities

Manual, timeconsuming processes

Informal and ineffective policies and procedures

Unintegrated systems and data architecture

Limited data which is rarely used

Level 1:

SUSTAINS

Steps towards centralization

Defined roles and responsibilities

Fewer manual processes

Defined policies and proceduresand procedures

Common platforms

Ad hoc analysis; manual data cleansing

Level 2:

REACTS

Transformation through automation

Well-trained and appropriately deployed staff

Centralized activities

Integrated policies and procedures

Integrated and automated systems

Data is clean, accessible, and easy to use

Level 3: TRANSFORMS

Leadership through innovation

Highly specialized staff

Fully automated processes

Automated governance

Machine learning / Artificial Intelligence

Predictive analytics

Level 4: INNOVATES

When you choose to work with Citrin Cooperman as your outsourcing solution, here is what you can expect:

FINANCE ASSESSMENT

(Approximately 3 weeks)

The first step in our process is an in-depth finance assessment. During this process, our team evaluates the quality of your documented procedures, the systems you are using, the maturity of your financial reporting, and the level of accounting support your firm currently receives. We identify where there might be opportunities for improvement and where there are significant issues or gaps. The result of this phase is a list of recommendations and an implementation roadmap that our team can help you achieve. The leader of this assessment stays engaged afterwards on an ongoing basis.

ONBOARDING (First month through to first close)

Often, the rapid finance assessment results in the next phase, which focuses on the month-end close process. The month-end close starts with an onboarding phase, at which time we start implementing the findings from the assessment and setting up the delivery structure for our services. This includes:

• Establishing a month-end close checklist

• Documenting standard operating procedures

• Agreeing on financial reporting formats and KPIs

• Setting approval thresholds, workflows, and other key controls

• Onboarding the team who will perform all of the in-scope tasks

• Setting up the monthly deliverable deadlines and collaboration technology used to work with your team

STEADY STATE

Once we have laid the foundation for our work together, we will settle into monthly communication. In addition to your engagement lead, we have a team of dedicated staff divided into different functions, who work alongside your internal staff. Our documented processes show everyone what is assigned to them and we also have digital portals that everyone uses to track their deadlines and other weekly activities.

We pursue continuous, incremental improvement to your firm’s processes and financial information. We can provide a much needed external perspective so your finance and accounting functions can continue to improve.

DECISION SUPPORT

Our ultimate goal is to provide management with decision support platforms that enable you to make crucial decisions about the direction of the company. These forward looking tools include budgets, financial forecasts and re-forecasts, projections, and key performance indicator dashboards. We tailor these analyses to your specific needs and present them in a clear and concise format. Having the right decision making support system in place is crucial to your company’s success.

Mike Zyborowicz Managing Partner