In 2003, law firm financial management was the new black. For the first time ever, The Lawyer 100 quizzed the UK’s largest firms on how they manage the cash they generate.
“A good managing partner should be able to tell you what his WIP [work-in-progress] is, what his debtor days are and what his bank balance is, no question. They have this information and should be able to just reel it off. Some can’t,” said Ian Mouland, a director of mergers facilitation company EJ Mergers. But whether they want to is, of course, another matter.
Features editor Matt Byrne reported on law firm financial management in The Lawyer 100, finding a strong correlation between financial success and transparency in financial management.
West End outfit Fladgate Fielder was revealed as one of the best financially managed firms in London and also among the most open about its financial management. While 53 per cent of the firm’s turnover was locked up, a recovery rate of 90.2 per cent is healthy indeed.
DLA’s financial management certainly confirmed the suspicion that it is one of the best managed firms in the country. The firm’s lock-up is split evenly between WIP and debtor days, with averages of 64 and 63 respectively, far outstripping the industry benchmark figure of 150 days. Pinsents was another strong performer, with an average lock-up of 93 days.
Lovells, too, was getting tough on financial management, boasting a very high recovery rate of 99.7 per cent, helped no end by the fact that bad debts are written off the balance sheet after five months.
On the debt front, thanks to Lord Falconer, the time may come when law firms will float on the stock exchange. In the meantime, others may yet follow the trail blazed by Clifford Chance and opt for private placement.
Law firms accessing capital markets is a novel idea, but as Byrne wrote: “Any prudent business would want to investigate it. And if nothing else, law firms are certainly prudent.”