An increasing trend in today’s legal marketplace is for law firms to hire CFOs. This is a response to the competitive environment, the evolving nature of the industry, and the increasing demands of price-sensitive customers. While some firms may balk at the significant additional expenditure hiring a CFO can require, others are reaping the benefits of having top financial professionals deliver tremendous value through financial decision-making and analysis.
Law Firms Must Be Strategic, Not Merely Responsive
In the past, established law firms could often set their own rates and rely on their reputations to drive customers to their door. Today, customers are increasingly demanding, both in terms of service and keeping their expenses down. If they do not get what they want, they will go somewhere else.
As a result, law firms must find ways to differentiate themselves, both in terms of marketing and branding (for example, targeting certain segments of the marketplace), or by looking at different billing methods which can offer a customer more cost-certainty or increased value. A CFO can help determine a firm’s financial strategy, and ensure that it can offer competitive services at an acceptable rate of return.
Technology and Outsourcing Provide Opportunities for Improved Financial Management
The increased use of technology and computer software in the legal arena has disrupted many traditional methods of operating within the industry, but at the same time has provided opportunities for strategic firms to gain an operational advantage. Through software and electronic media, firms can automate routine processes to save time and money, or simplify procedures to allow assistants or junior associates to take on tasks that once were restricted to experienced lawyers. Staffing decisions are particularly important given the high employment costs, and in a large firm shrewd management can very quickly have a big impact on the bottom line.
Another strategic option a CFO can suggest to a firm is to take greater advantage of outsourcing or partnerships with other firms or organizations that can deliver services at a cheaper rate. These opportunities are becoming increasingly available in today’s global marketplace, which is an advantage for firms that have the financial and operational expertise to exploit them.
Data Analysis is Becoming Increasing Valuable
Another benefit of the increased use of software in practice management is that a firm’s computer systems have the ability to generate data and analytics which can be analyzed to improve efficiency and provide better financial management. However, a problem that many firms have encountered is that no matter how good the information is, there needs to be someone in management with the competence and knowledge to understand the data and use it in decision-making. A CFO will naturally have the expertise to take on the role of leveraging analytics into successful decision-making and helping the firm strive for optimal efficiency.
Information and financial expertise are becoming increasingly important in all areas of business, with the legal industry being no exception. As a result, CFOs are becoming an essential piece of a firm’s management strategy as law firms seek to optimize their operations and position themselves with the most effective strategies for financial success.