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A Business Management System Can Draw Private Equity Interest to Firms article image

A Business Management System Can Draw Private Equity Interest to Firms

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Many firms are exploring alternative investment options today. To successfully secure external investment, firms need to strategically position themselves as attractive investment targets. Business Management System (BMS) as a technology can enable law firms to meet investors’ selection criteria, which typically include scalability of business, firm’s growth potential and quality of earnings.   

Scale and efficiency go hand-in-hand. Automating and streamlining business processes delivers efficiencies and facilitates a joined-up approach to business, which in turn provides scalability. Also, technology enables law firms to simultaneously operate across multiple disciplines, borders and legal and non-legal business environments. BMSs allow firms to register financial transactions, manage relationships between subsidiaries and the parent organisation including partial ownership structures, administer internal cost accounting and enforce accounting policies and rules seamlessly across the business operation.

With private equity investment, the complexity of reporting will inevitably increase. A BMS enables tracking and delivery of profitability and regulatory compliance-related reporting – encompassing national and international legal, financial and accounting legislations.

Law firms’ ability to scale can often be restrained by the availability of resources, both human and physical. BMSs facilitate human resource and commercial management. For instance, by conducting skills and competency or client cross-sell analysis, law firms can easily identify gaps and take corrective action to capitalise on what would otherwise have been missed opportunities.

Leveraging business intelligence – a key element of a BMS – to provide evidence of growth potential is important. Derived business intelligence enables law firms to report on all levels of the business – i.e. industry sectors, types of work, practice areas, or clients/matters; and understand what aspects of the business are driving the financial numbers. Firms can formulate more effective growth strategies based on client segments and individual client basis.

From a quality of earnings standpoint, investors really want to assess the future potential of the firm’s assets, the majority of which are intangible – things like intellectual and human capital, brand, strength of client relationships and client satisfaction. Using a BMS, law firms can evaluate these assets in a tangible manner by breaking down transactional information.

Fundamentally, private equity firms will invest in law firms whose value in the market can be raised. Underpinning the firm with a BMS provides compelling evidence of the organisation’s ability to achieve its own and its investor’s strategic business goals and long term initiatives. In fact, BMSs are commonly used in the financial sector, and evidence of a firm using the technology is likely to attract private equity investor interest.

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