End of term reports:The provincial practice
24 October 1995
If carefully presented, a firm's financial reports can become a powerful means of encouraging partners to take action.
The accounting function encompasses a wide role. At one end of the spectrum, it is a simple 'bean counting' operation within the various regulatory requirements of the Inland Revenue and the Solicitors Accounts Rules.
The most common demands on the accounting function arise from solicitors' needs for information. This ranges from mundane explanations of the finer points of a matter ledger card to the provision of billing trends on clients in a particular industry segment. By their nature, these requests for information involve the accounts team in being reactive.
A well-organised accounts function will anticipate the more common requests and provide reports in advance. While this may allow an accounts team to comfort themselves with the thought that they are proactive, they are in fact just exhibiting very quick reactions.
At the other end of the spectrum, and the real challenge facing the accounts team, is the provision of behaviour-changing information.
The role of the partner has changed considerably in recent years. Without doubt, the days when partners could justify their existence on an ability to provide a legal service to clients are over; partners must be capable of understanding the financial demands of a business and fulfilling their part in order to ensure its success.
The internal financial information they receive must enable them to do this.
Financial information for partners tends to divide into two categories: general financial reports and performance statistics. The financial report will be of a management nature and provided by way of background. From it, partners should be able to assess the contribution of individuals, teams and departments, gain an overview of how the whole business is developing and a general indication of future earnings.
It will generate what might be described as the 'feeling factor': a good feeling if the figures are positive; the opposite if they are poor.
But other than deciding whether or not to replace the company car, partners do not tend to make a great deal of use of general financial reports.
In terms of achieving change, performance statistics can be a powerful tool.
The structure of a partnership is such that many more people have access to aspects of financial information than would be the case in a company or commercial organisation of a similar size and turnover. If an individual's debt levels are high, or a team's billings are low, this will be revealed in the performance statistics, for all to see. This is why the presentation and content of the financial information should be carefully considered. If well presented, it can generate change; if poorly presented, it can be divisive. It is here that the management accounting function faces its greatest challenge - in using the financial report to encourage positive change.
Looking through financial accounts is seen by many partners as administration, and therefore falls low on their list of priorities. How can they be encouraged to read reports? The key lies in achieving the right balance of clarity and novelty.
To be understood, partners must be familiar with the different aspects of the report. Consistency and simplicity is therefore important. The focus of attention needs to be directed to areas of particular concern or where change is required rather than at the information in general.
Different methods of presenting the information - graphs, charts, flow diagrams - can all be considered. It is however the content which must attract attention.
To achieve change, new topics should only be introduced gradually, once they have been understood and, hopefully, have resulted in some change.
A summary sheet can be a useful way to highlight the new focus for the next month or two. Knowing when to introduce a new subject, and selecting which one to focus on, is where the skill of the financial management team comes in.
Those with responsibility for financial functions should not underestimate the power of accounts as a means of achieving positive change. Achieving the right balance of creativity and consistency is, however, vital.
Christopher Charles is chief executive of Wansbroughs Willey Hargrave.