Finance for dummies (and lawyers)
How is your understanding of business financial information? The Journal went to see what could be learned from a Society CPD seminar on the subject
Accounting for lawyers is not, I think, most people’s favourite part of the LLB degree. Many lawyers, it seems, also feel rather uncomfortable dealing with figures, as if words are their forte instead. However, there are many contexts in which some grasp of the basics is undoubtedly beneficial.
Thus it was that the Society’s CPD team put on a course in May designed to help members feel more at home when finance is being discussed. (It will run again in October.) I thought it worth going along to see what might be worth passing on from “Essential Financial Skills for Lawyers”.
The course delegates were an interesting mix of in-house and private practice, including two sole practitioners, and two who had come from the continent in order to take part. Some wanted a better grasp of financial management in relation to their own practice, especially if a designated cashroom partner. Some wanted to understand how clients’ minds worked in assessing a proposed new venture. Some wanted a better handle on what happened within their finance department. All felt they needed a better grasp of the terminology and its application.
First of all our tutor Karen Price, a former finance director turned trainer, tested us on our understanding of some basic financial terms. Some, such as “fixed asset” and “debtors”, caused few problems, but various interpretations were offered of “debtor days” and “profit margin”, while “accrual” and “payback” had most people stumped.
In fact, the whole seminar consisted as much of practical exercises as of direct tuition, an object lesson that attempting to do something is the best way to test your understanding of it. After a session on rules for effective budgeting – including allowing enough preparation time ahead of any decisions – we moved seamlessly into forecasting, before turning to profit and loss reporting, and our first main exercise. Using data provided for a startup magazine company, this was designed to instruct us in the separate calculations needed to draw up a profit and loss account, and a cash flow summary and projection – the two can look very different, but both need to be tracked. It is fair to say that our understanding how to treat money received for a service only partly performed, and which revenues and costs to recognise so as to give a true profit figure for a month’s trading, were much improved as a result.
Further sessions followed on the importance of credit control (and the cost of bad debts, illustrating the level of extra sales required to compensate for them), and then company reports and accounts, explaining the key accounting ratios used to test a business’s performance and its prospects going forward.
A clash of events prevented me staying for the afternoon, but the course materials promised some more challenging exercises on identifying potential acquisitions, forward financial projections and the viability of a spinoff conference, alongside briefings on elements of company valuation and making a business case for investment.
How would you choose between targets with different projected revenue and growth prospects? Could you draw up profit and loss projections on being provided with figures for necessary investment and other costs producing increased turnover, and the dividend policy?
It would be fair to say that the essentials of this course turned out to be more difficult to convey to a magazine readership than a seminar on a legal topic. But if those attending felt comfortable by the end of it with the range of calculations they were asked to undertake, and the concepts deployed, they should have gained quite a lot.
Essential Financial Skills for Lawyers will run again on 16 October. For more information visit the Law Society's website