Finance and People

Giles Murphy and Rachel Stone suggest how to improve financial discipline and create a clear human resources policy within chambers. In any professional services business, having good people and sufficient cash are pre-requisites. However, in many chambers, both often receive insufficient attention. So what should you be doing to reduce risk and maximize the opportunity from both?

As a minimum, the management team should receive a set of regular management accounts on at least a monthly basis. The management accounts need to be accurate, but more crucially, they need to be timely. It is much better to have a prompt set of management accounts, say within 10 days of the month end that incorporate some estimated figures, than to wait several months for precise data which is then out of date.


Management accounts should include, again as a minimum, a summary of the cash flows of the business. Without cash, the business goes bust. A summary of inflows and outflows provides a net cash flow for the month and the closing cash position. This figure can then be compared to the facilities available so that the management team has an indication of chambers’ financial “headroom”.

A more sophisticated set of management accounts should also incorporate a profit and loss account along with a balance sheet. The profit and loss account sets out a more accurate picture of the true income and cost of chambers, by including expenses incurred but not yet paid for and income that is due but not received. In contrast, the balance sheet gives a snap shot at a point in time of the assets and the liabilities which can be tracked over a period to see whether it is improving or deteriorating.

However, to interpret the management accounts and, in particular, cash flows, management teams need a benchmark. A budget or cash flow forecast is normally prepared at the beginning of the year, using certain assumptions on levels of work and resulting flows of cash. Each month, management should compare actual cash flows with forecasts to understand how chambers is performing.

Minimize lock-up

In relation to cash inflows, the principal issue normally revolves around ‘lock-up’ or the time it takes clients to pay for the work. Your mechanic would not allow you to pay for a car service three, four or maybe six months after he had done the work. A mechanic wants to maximize the cash position while you can still remember all of the work which has been done. However, many professional services firms including chambers often see the recording, billing and cash collection as merely administration that gets in the way of servicing clients. Many barristers take responsibility for managing this process, but then fail to deliver until put under pressure. As a result, this “administration” is increasingly being taken away from barristers to be undertaken by a support team. While this may have incremental cost implications for chambers, it can quickly be demonstrated just how this pays for itself if lock-up management becomes more efficient.

Forward planning

Far too often, cash collection can suddenly become top priority as a large ‘unexpected’ cost of chambers needs to be paid. But with planning, very few expenses should be genuine surprises. For example, salaries, rent and rates are all payments that can be estimated with reasonable accuracy well in advance. These costs should therefore be incorporated into the cash flow projections referred to above to ensure that the management team is fully aware of the cash outflows they will experience over the next few months and can plan accordingly.

Overall, the financial dynamics of a set of chambers are not complex. Sensible planning combined with monitoring financial performance reduces risk and when the management team is equipped with accurate and up-to-date monthly figures, their financial understanding of the underlying business improves substantially. As a result, the team can make informed decisions and manage the business more effectively. Very importantly, this process should help to improve income and reduce costs, as greater understanding enables the team to focus on and challenge areas that are considered inefficient or unnecessary.

People management

When it comes to employment issues, start as you mean to go on. This means having effective employment contracts which comply with the latest legislation and a short handbook that explains your expectations of staff. Human resources documents should be in plain English so that staff rights and obligations are clear.

Robust policies and procedures give you and your managers a road map for effective management, and below we outline the priority areas.

  • Recruitment and selection
    Poor recruitment carried out by untrained interviewers increases the risk of, for example,  discrimination claims or the recruitment of unskilled staff who subsequently have to be removed which is very time consuming and disruptive.  A good recruitment policy and procedure lays out a clear process, the need for detailed information on the vacant role and a professional interviewing and selection structure.

 

  • Managing performance
    To get the best from staff, take time to clarify the priorities and performance standards for each role. Regular performance reviews, whether done informally over a cup of coffee or formally through an appraisal system, will keep people on track. Your policy should set out areas of competence and general professional standards besides giving details of how performance is discussed and assessed. If you link performance and pay, this should be clearly explained.
  • Discipline and dismissal
    Every business needs a clear disciplinary policy and procedure that explains what  happens if a serious problem arises. This should give you a clear and practical guide on how to run the meetings, warnings and possibly dismissal decisions that may ensue.  If you do have to address problems with conduct, capability or performance, take specialist advice before going into your formal disciplinary processes. Anyone who is inexperienced in this area can provoke a tribunal claim all too easily. If members of your management committee are responsible for making decisions about continuing employment, make sure they have training and understand the legal risks.
  • Handling staff complaints and grievances
    Like the disciplinary procedure, a grievance process for handling staff complaints is a legal requirement. It is also wise to have an informal process so concerns can be discussed before raising a formal grievance.
  • Training and career progression
    Employers are responsible for providing training so that staff can carry out their job roles satisfactorily, but many individuals will have potential to deliver more for your chambers. At least once a year, take time to talk about training needs and future aspirations – the performance review process is a great point to do this.
  • Equal opportunities
    All businesses should be able to show that they treat staff fairly, regardless of gender, race, disability, age, ethnic origin, marital status, sexual orientation or religious or philosophical belief. A policy statement is not enough – training and monitoring are important so that your policy translates into everyday behaviour.
  • Standards of conduct and behaviour
    Your disciplinary policy should give examples of misconduct and gross misconduct, but you may want to define your standards in a more positive way! For example, if the management team has an agreement about standards of client service, promote these to all staff. Other important standards relate to fair treatment of others, use of IT and social media, avoiding harassment and bullying, speaking to the press and practical points like timekeeping and claiming expenses.

Who should deal with human resources (HR) issues in our chambers?

Many barristers shy away from staff matters, feeling that these are better handled by the senior clerk. Whilst the senior clerk may co-ordinate and lead the response to staff problems, barristers need to appreciate their role in providing timely and detailed feedback on staff performance. Whoever takes HR responsibility will need some training in the fundamentals of employment law and access to a good HR specialist for help with complex problems such as long term ill health, harassment cases or discrimination claims.  The management committee can oversee HR policy and procedures, besides acting as the back-stop for disciplinary and grievance appeals if they arise.

Finally, a word of warning - ‘importing’ policies and procedures from other organizations is unwise. You need to be sure that the rules fit your own specific culture and way of managing people.

Finance and people issues are at the heart of effective chambers management. The growing pressures on the Bar may highlight any gaps in chambers’ systems and processes -  now may be a good time to review and address these to improve the overall efficiency of your organization and to reduce overall risks.

Rachel Stone, director, People Management, and Giles Murphy, director, Head of Professional Practices, Smith & Williamson

 

 

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