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External legal matters: How to take control and manage spend

Surprises are great when it is your birthday but receiving an invoice from a law firm when you were not expecting it or an invoice that is far higher than you were expecting is never a good surprise. 

For a CFO or Finance Director of an SME, or a business without an in-house legal department, it can be a major challenge to keep law firm expenditure under control.

So what can you do about it, particularly when you are not personally involved in instructing the law firms?
 

A starting point to taking back control is to analyse the different types of legal expenditure your business is incurring and who is incurring it. By looking back over a couple of years through accounts payable you should be able to identify invoices which appear to be from an external law firm. Once you have located the invoices you should be able to identify the various law firms who are regularly instructed by your business, the different categories of expenditure i.e. business as usual (for example supporting major sales bids), project-related (for example a major IT procurement project or a business acquisition), regulatory compliance, litigation or disputes and organizational support (for example employment law matters, office-related). 

Once you have categorised the spend, you will start to see which individuals or business units have incurred the different categories of expenditure and you will also be able to compare the data to budgets and forecasts. Very often legal expenditure is overlooked as a necessary cost of business but with the benefit of this historic data analysis you should be in a position to assess trends and spending patterns and help the business forecast legal expenditure and budget for it more effectively. 

As with most things, you will also be in a stronger position to negotiate rates and fixed fees with your law firms if you have a clear understanding of the amount you have previously spent with them. 

Going forward you will want to build a new process to manage legal spend within budget. You will need to be clear who within the business is authorised to instruct law firms and when a business case is required. Initially you might want to consider that no external firm be instructed without your approval. This might seem heavy-handed but it will give you an early opportunity to spot any non-budgeted items and to ensure that there is a clear understanding with the law firm of the scope of the instruction to reduce the risk of cost overruns.

An Excel spreadsheet of all legal expenditure and a manual approval and review process will be a good place to start to get your legal costs under control but once you have the data categorised you will be in a strong position to go one step further and automate invoice review and approval, saving you not only money but also a considerable amount of your time.

Crowd & Co
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