MHA | Good management information – the do’s and don’ts

Good management information – the do’s and don’ts

Posted on: June 29th 2022 · read

What makes good management information (MI) for law firms and which areas should you 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 (MI) 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, again with as much analysis as required.

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

You should always consider reporting on key performance indicators (KPI’s) alongside your other MI. Your KPIs should refer to those having been set as targets at the beginning of your financial period.

But they may not purely be financial targets as some could refer to softer performance indicators such as client satisfaction scores. Those managers who receive management information (MI) 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 and then add on your profit margin to arrive at your budgeted fees.

Don't just look backwards

Even though you are preparing management information (MI) only one week following the close of your month-end, this is still looking backwards at performance that has already happened. You should also be looking forwards. This is done by cash flow projections into the future using the start point of your actual bank balances at month-end.

It is normal to prepare a rolling 90-day cash flow forecast together with an extended 12-month forecast. You should be considering budgeted income and expenditure and comparing this with actual results to generate a variance analysis.

Whilst reviewing the variances you can flex the budget to allow for changes in circumstances to be built into forward plans. This also involves considering projected outturn for the year-end.

Do build into financial results some comparisons

It is quite normal 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 regular comparisons help when your business has seasonal results and you may expect some months to be busier than others. Again, when you review the comparisons you are looking for variances that flag underperformance in specific areas.

Don't ignore departmental performance

You may choose to issue management information (MI) to the board or management team as a whole, which includes a consolidated position. But specific departmental managers will need to understand how their teams are performing.

So, 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

While you are completing your management information (MI), don’t forget to include the words, not just the numbers!

You should be explaining the reasons behind any variance, what is impacting the results being posted, why you are having to spend more or less, and why working capital is increasing or decreasing.

A good narrative should sit alongside the numerical story of business results or plans.

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.

Anybody reviewing the management information should bear in mind actions that need to be undertaken to improve.

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