It was once accepted that a partnership’s finances were a closely guarded secret and one could only guess at the amounts being earned.
But this traditional view is changing. Greater transparency is seen by many firms as an opportunity to gain respect from clients and possible recruits. Besides, there is marketing value in moving up the league tables and inclusion inevitably involves some disclosure.
With the passing of the Limited Liability Act in July and the opportunity for firms to incorporate as a GB Limited Liability Partnership (LLP), the need for transparency will increase. Reporting a firm’s financial position will become more standardised as businesses will have to follow the Act’s requirements.
In today’s climate of greater transparency, even those organisations that do not convert to GB LLP status could face requests from clients or potential clients to see detailed financial information and even partners’ earnings.
In addition to these external pressures, greater openness is expected internally, particularly if firms are to motivate and retain partners and employees. All of these factors are combining to engineer a change from the secretive past.
With this openness, comparisons can be made between firms’ performance. Those responsible for results are increasingly finding that they are being judged by their figures which are having to be made more readily available.
So what should firms do to ensure their internal systems help maximise the organisation’s
potential performance?
Structure
Firms should consider the most efficient way to organise themselves. Depending on size this could mean delegating certain responsibilities, most notably finance, to a committee.
This may not necessarily include the most senior partners, but just those most capable of managing and improving a firm’s performance.
The committee’s responsibilities
The committee’s terms of reference should allow it to determine the scope and timing of internal reports regarding the firm’s performance.
Most firms produce monthly, or at least quarterly management accounts. The prompt production of reports is important if the information is to be used in the management of the business. Such reports may therefore include estimates that would be refined for the annual accounts. The choice between timely versus accurate information needs to be considered, but once a decision has been made deadlines should be met.
The scope of management information is more contentious. The overall objective must be to monitor the firm against key objectives. Recent advances in the use of spreadsheet programs and IT mean it is possible to provide copious amounts of information and, while the manipulation of this data can be extremely useful to managers, it is crucial the right data is used.
