Finance, Accounting, and Human Resources

Jeffery B. Nemy

If you cant measure it, you cant manage it!

-Peter Drucker

Financial management of a professional services firm requires a delicate balance between shareholders needs to control costs and grow the business profitably and managements responsibility to recruit, train, motivate, and retain talented employees. This delicate balance is an art, not a science, and requires a close interrelationship between finance and human resource (HR) functions. This chapter focuses on both departments because a clear delineation between them is difficult to draw, especially in small- to mid-size firms.

It is often said that a professional services firms most valuable assets walk out the door every night. Managements challenge is to properly motivate those assets to return in the morning and deliver high-quality professional results. Importantly, such motivation encompasses far more than a healthy salary, as training, evaluation, mentoring, and bonus programs contribute significantly toward an employees attitude of the firm and his or her individual performance. Successful firms balance these needs well, although seldom to everyones satisfaction. In this chapter, we address key issues in managing both human and financial resources.

Why This Topic Is Important

Millions of dollars pass through even the smallest professional services firms. In many cases, the firm may act as an intermediary agent of the client,

procuring goods and services on its behalf, and accordingly has a significant fiduciary responsibility to safeguard its assets. Executive management of the professional services firm must be reasonably well versed in essential financial concepts and related HR issues to provide effective leadership.

Without such knowledge, it is relatively easy to make decisions that, even though they appear to be the right thing to do, may conflict significantly with fundamental financial planning and accounting principles and in the most serious situations could be deemed illegal. Further, by understanding where potential liabilities may be hidden, executives can take appropriate action a priori to ensure that proper procedures are employed. Clearly, a firm must also be well managed financially to exist as a going-concern. Finally, solid HR management is vital to a firms ultimate success because it has only the knowledge, skills, and abilities of its employees to sell.

Human Resources

Management of the professional services firm requires a unique focus on the firms most critical asset, its people. The interrelationship among HR, accounting, and finance is so close that a clear delineation of responsibilities often is difficult to find, particularly in smaller organizations. Smaller firms will oftentimes aggregate the responsibilities of overhead departments such as HR and finance together. Compensation management, payroll processing, vacation tracking, management of legal issues, and timesheet management are among the traditional HR areas that often may be managed to greater or lesser extent by the finance department. Because of the critical integration between these two functions in the professional services firm, financial managers and HR managers often must be well versed in each others craft.

Typically, smaller professional services firms do not have the wherewithal to recruit and retain seasoned HR professionals. Instead, mid-level financial professionals with industry experience are routinely tapped for the senior financial and HR leadership roles in small firms. These employees are often well qualified to meet the needs of a small firm. But as the firm grows, the need for specialized leadership becomes more critical. Systems, processes, and procedures that work well on an informal basis in a small firm are quickly rendered ineffective once the organization has more than a few dozen employees. Senior leadership of the firm must augment those resources themselves when the firm is small and then be prepared to recognize when it is time to recruit professional HR talent to the team as the firm grows.

The Role of Human Resources in a Professional Services Environment

The HR department plays a key role in every organization, although in a professional services firm, effective execution of that role can be a major factor