What is Spend Management for Law Firms?
Do you know how much money flows into and out of your practice—and whether business expenses and profits are serving your firm’s goals? Taking charge of your law firm’s spend management strategy is crucial to running and maintaining a successful practice.
Tracking client expenses, managing monthly budgets, and keeping tabs on your expenses, operating costs, and profitability paves the way for a sustainable future.
In this article, we’ll explore the foundational aspects of law firm spend management. We’ll cover:
- What spend management is
- How law firm spend management systems can benefit your practice
- What to look for when choosing the right law firm spend management software for your business.
What is Spend Management?
Spend management is the process of controlling expenses and business expenditures across all aspects of an organization, using technology to gain a unified view of all company spending. From pre-approving expenses and implementing process controls to reimbursing costs incurred, spend management offers a broad perspective on a company’s financial health by examining expenditures before and after they occur.
Put simply, spend management is a set of practices and processes that ensure a business makes smart procurement and sourcing decisions. It’s all about maximizing value from company spending, reducing costs, and mitigating risks like financial impropriety and misconduct.
Traditionally, spend management has been used in the legal profession primarily by in-house legal teams to manage and control costs associated with outside counsel and legal service providers. But as law firms continue to face unique spend management challenges that can impact their growth and profitability, lawyers are eager to adopt new software solutions that can solve common core pain points such as:
- Lack of control over spend
- Profit leakage
- Cash flow issues and/or a lack of capital
- Time loss
Spend Management for In-House Legal
For in-house legal teams, spend management follows a more “traditional” definition and is used to manage and control costs associated with outside counsel, firms, and alternative legal service providers.
Spend management for in-house legal teams helps law departments:
- Centralize and organize their spend data
- Track and monitor legal costs to inform decision-making
- Streamline efficiency and operations by automating tasks such as invoices and workflows
Spend Management for Law Firms
For firms, lawyers, and their teams and staff, law firm spend management helps practices control expenses and spend across all aspects of their business using technology to gain a unified view of firm spend.
Law firm spend management offers many benefits, including:
- Peace of mind by ensuring constant visibility into, and control over, spending
- Increased profits and reduced revenue leakage
- Reduced financial risk, impropriety, and misconduct
- Time savings
Thanks to emerging technology, law firm spend management has become increasingly relevant for firms of all sizes.
“If your firm’s employees often fail to categorize spending, you may want to seek out financial management products that allow you to monitor expense transactions in real-time.” — Niki Black, Attorney and Senior Director, Subject Matter Expert and External Education for MyCase
Common Spend Management Challenges for Law Firms
Law firms face unique spend management challenges that can impact their growth and profitability. Below are a few of the most common challenges related to managing firm costs.
Unprecedented Legal Costs
From postage and office supplies to court filing fees and travel expenses, the costs of running, maintaining, and growing a firm aren’t getting cheaper—or easier—to manage. Many law firms struggle with ways to effectively manage and track daily business costs, leading to worries like end-of-month billing surprises and making payroll.
Manual Processes
Keeping track of physical receipts is a messy, manual, and time-intensive process. It’s also a primary source of firm profit leakage. Manually tracking and entering expense data leaves room for errors and missed reimbursable opportunities.
Inadequate Reporting
Many firm leaders struggle with trusting their analytics and reporting because they lack the ability to gain real-time spending insights. Without accurate, up-to-date expense data, it’s difficult to protect profit margins, understand which cases are (and aren’t) profitable, identify cost-cutting opportunities, and quickly spot financial misconduct or misuse of funds.
How to Improve Law Firm Spend Management
Improving your law firm spend management strategy is an attainable goal—one that can help you build a more profitable practice. Here are a few steps you can take immediately that will optimize your law firm cost management and ensure more informed, data-driven decisions.
Evaluate Your Firm’s Expenses and Operating Costs
Running the business side of your firm involves many moving pieces, and tracking your operating costs is the first step to tracking expenditures and optimizing profitability.
Start by identifying and assessing various expense categories within your firm. From office supplies to software subscriptions, hardware, marketing outreach, and staff salaries, list your expense categories and note how much your firm is spending on each. Additional expense categories to consider include:
- Office space (cost of renting or leasing office/retail space)
- Travel (airline, mileage, parking, rideshare, etc.)
- Insurance (premiums for legal malpractice, property, etc.)
- Advertising (cost of promoting your firm)
- Utilities (gas, water, electricity)
After you’ve established your expense categories and mapped out their costs, identify areas of overspending and inefficiencies. Note yearly and monthly trends to see how much you spend in certain categories, and compare those numbers to your law firm’s budget. You should be able to identify areas where you need to allocate more resources or cut back on expenses.
Many firms also utilize software services to help manage overspending, reduce financial impropriety, and identify inefficiencies. For example, MyCase Financial Reporting helps firms filter their spending data by generating numerous reports (time and expense, trust account, accounts receivable, etc.) to provide a holistic view of a firm’s overall performance.
Establish Clear Policies
Developing and enforcing clear invoicing guidelines and expense policies can improve your law firm’s spend management strategy. Guidelines give your firm standards to follow during invoice review and help to keep your monthly budget on track.
When building an invoicing and expensing policy, be sure to include:
- Staff guidelines: Determine who oversees specific tasks, approval processes, etc.
- Invoicing procedures: Identify formatting, what expenses to include, how invoices are sent
- Timing requirements: Denote when invoices are sent and reviewed
- Client policies: Decide how often bills are sent, late payment fees
- Signature page: Establish when consent is necessary
Leverage Spend Management Software
Technology and software can help improve your firm’s spend management strategy by providing complete visibility into monthly cash flow.
Law firm spend management software like MyCase Smart Spend is developed specifically for law firms and empowers practices to easily pay, track, and manage firm and client expenses. With a complete picture of real-time insights and financial data, you can reduce overspending, financial inefficiencies, financial impropriety, and surprise budget issues.
In addition to delivering complete insight into a firm’s financial health, spend management software can be leveraged in other ways to unlock new levels of productivity.
Benefits of Spend Management Software
Law firm spend management software gives firms more visibility and control over their finances so they can gain a unified view of all business spend. Below are just a few of the wide-reaching benefits your practice can enjoy when leveraging law firm spend management software like MyCase Smart Spend.
Improve Firm Profitability
Law firm spend management software protects your profit margins and cash flows by accurately tracking case-related expenses. From capturing digital receipts for costs like postage and court filing fees to automating adding case expenses and client invoices, law firm spend management software prevents revenue leakage and ensures expenses are accurately recorded and reimbursed. And, it’s easy to use. With MyCase Smart Spend, simply:
Spend: Make a charge
Snap: Take a photo of the receipt
Sync: The expense is automatically transmitted and instantly uploaded to MyCase
Repeat.
Increase Operational Efficiency
With law firm spend management software, your firm can say goodbye to manual receipt tracking and tedious expense entry tasks. The software automatically tracks your case-related expenses to streamline accounting processes and simplify end-of-month reconciliation. This not only reduces time spent on repetitive tasks, but also minimizes manual entry errors, ensures a more accurate financial overview, and frees up time for firms to focus more on what really matters: serving clients.
Provide Visibility Into Firm Spending With Analytics
From detailed legal spend analytics to monthly finance reports, law firm spend management software dives deep into your firm’s finances to identify cost-saving opportunities and reduce financial impropriety. With real-time insights into expenses, you gain full visibility into all spending for maximum control, transparency, and sustainability.
How to Evaluate Law Firm Spend Management Software
While there are numerous legal spend management solutions available today, they primarily solve the needs of in-house legal teams. However, new software is emerging—and it’s good news for law firms.
When searching for the right law firm spend management software, here are three must-have features to look for:
- Reporting & Dashboards: Understanding your finances shouldn’t require any decoding on your end. Look for software that simplifies oversight with a comprehensive dashboard and easy-to-read reports.
- Expense Tracking: The right software ensures you never miss another reimbursable expense. Look for a solution that streamlines billing by automatically adding reimbursable expenses to client invoices while on the go.
- Budget Spend Limits: The best way to reduce risk (and gain peace of mind) is to control spend before it happens. Look for software that lets you set spend limits for cards, categories, and staff. The right technology should also let you easily manage monthly budgets with pre-approved spend categories.
Improve Spend Management With MyCase Smart Spend
Having a spend management strategy plays an important role in the financial efficiency and profitability of your firm. While legal spend management software has traditionally been developed to meet the needs of in-house legal teams, a new spend management solution has emerged—and it’s a game changer for law firms.
MyCase Smart Spend is the first spend management tool purposely built and developed to meet the unique needs of law firms. With this powerful solution, your firm can protect profit margins, control cash flows, and gain real-time insights into monthly firm finances.
Smart Spend allows you to maintain tight control over, and gain detailed visibility into, your firm’s expenses and spending. As a result, risky, unreliable manual data entry is eliminated and replaced with real-time monitoring and controls that significantly reduce the risk of internal financial misconduct.
Smart Spend is available in MyCase, CASEpeer (the #1-rated practice management software for personal injury firms), and LawPay (the top-rated legal payments solution trusted by 50,000+ lawyers).
Ready to say goodbye to cash flow uncertainty and profit leakage? Learn how MyCase Smart Spend can revolutionize your firm’s spend management strategy.
