Good management information – the dos and don’ts

Karen Hain, head of professional practices at MHA, discusses what makes good management information for law firms and some areas to avoid.

Do be timely

Information should be prepared and circulated on a timely basis. The older the information, the less useful it becomes. The aim should be to circulate within one week of month-end.

Do be accurate

It goes without saying that the numbers making up the management information should be accurate. But they should also include all accounting adjustments and not simply be based upon the cash transactions that have been processed during the period. The accounting adjustments should cover such items as prepayments, accruals, and depreciation.

Do include these financial statements as a minimum

• A detailed profit and loss account showing the split of fee income and all of the expenditure broken down into the necessary level of analysis.
• A balance sheet as at the month end date.
• A cash flow statement showing cash receipts, and how they have been spent.
• A summary of working capital for the month which will highlight unpaid debtors, unbilled work in progress, and unpaid suppliers.

But don’t overwhelm with data

You should only be reporting on matters that are relevant to immediate business decisions or to track progress against plans.

Do consider KPI’s and summaries

Consider reporting on key performance indicators (KPI’s) alongside your other management information. They could refer to softer indicators such as client satisfaction scores.Those managers who receive management information may prefer you to prepare a one-page summary of the key headlines with detail sitting behind.

Do prepare budgets

It is always difficult to forecast what you expect your firm to be able to bill each month of the coming financial year. It is easier to budget what you expect to spend during each of those months as you have in general a fixed overhead with regards to property, staffing, insurance and the like. So perhaps the way to approach setting a fee income target is to consider what you expect to have to spend then add on your profit margin to arrive at your budgeted fees.

Do build into financial results some comparisons

It is useful to see a set of monthly results together with a set of year-to-date results. These can then be compared against budgeted figures and also compared against the same month last year, and the same period to date last year. These comparisons help when your business has seasonal results.

Don’t just look backwards

Your management information should also be looking forwards. This is done by including cash flow projections into the future using the start point of your actual bank balances at month end. Your budgeted income and expenditure can be compared with actual results to generate a variance analysis. You can then flex the budget to allow for changes in circumstances to be built into forward plans.

Don’t ignore departmental performance

It is always useful to departmentalise performance to check that there are no problems specific to one area of your business.

Don’t ignore the words

You must include the words not just the numbers! You should be explaining the reasons behind the results and variances.

Don’t ignore any necessary actions

Where the results show negative variances against expectations, there may be a tweak required to the business plan, or a specific action plan, that may need to be implemented before negative factors take over.