Barry Wilkinson and other members of the Law Management Section executive committee give their advice and predictions on some of the key challenges facing law firm managers in the current environment.
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BARRY WILKINSON – committee member since May. Trained as an accountant, becoming finance director at a major group before setting up consultancy Wilkinson Read, where he advises law firms on how to improve profitability through innovative performance management, and helps firms with excessive borrowing manage their cashflow.
As an expert in law firm finance, what are the biggest problems facing law firms, and how can they resolve these?
From a financial perspective, I think that in most firms of the Law Management Section (LMS) profile, profits have recovered well from the difficulties of 2009/10 – though I am still surprised and disappointed about the state of many balance sheets.
I am far more concerned about the issues just around the corner due to deregulation and the opening up to alternative business structures (ABSs), including low-cost competition. Newly
deregulated markets follow a predictable sequence, and it is hard to see how the legal market can be an exception. Before long, the market will polarise, with strong segments at the top (premium providers) and bottom (low-cost providers) but a major contraction in the middle ground, which is where most LMS members are.
Strong management will make the difference between winners and losers.
Open markets are unforgiving, and ultimately, ABSs will affect all parts of the law firm business model, but in the short term, firms need to do a few key things to ensure they are among the winners:
First, ensure that all partners (not just the managing partner) are aware of the likely sequence and the need to be as fully prepared as possible. If they don’t get it, they won’t act.
Decide what you are going to compete on – price, quality, service, relationships and so on. Resolve to be the best in your market at that. You cannot be all things to all clients in the brave new world.
Get the balance sheet in order. This is no time to be over-borrowed. Convert lockup into cash – relentlessly. Set high operating standards internally and adhere to them. Let your weaker competitors have the bad payers. It may just finish them off.
Then address the cost structure. I will be doing an LMS webinar later this year on this subject. What matters is not what you spend, but what you get from what you spend. This applies as much to people costs as to overheads such as marketing or IT.
Look after your existing clients and reinforce your reputation – especially for service – and make it very hard for competitors to prise them away. The better your service, the better your prices, and
usually the better the atmosphere at work.
In summary, to quote Admiral Stockdale, confront the brutal truth – but never lose faith.
Do you expect law firms to increasingly bring non-lawyer financial experts into their businesses? How much of a difference will this make to the way firms run their finances?
Successful firms will distinguish between partners as investors, and management, which may be carried out by partners or other professionals.
In other sectors, the finance function’s role has moved from being a scorekeeper and policeman (history and compliance), to encompassing a wider brief including planning, control, investment, revenue management and financial projects (including cost reduction) – that is to say, much more oriented towards making things happen and managing the future. In the jargon, ‘transformed’ finance departments are now a ‘business partner’.
ABSs will operate in this way, and traditional firms will follow eventually, even if reluctantly.
What will you bring to the LMS executive committee?
A different perspective. I am very analytical and have studied businesses and markets for many years, so I can have an element of detachment in seeing the changes unfolding. But I am not too detached, as my own business depends entirely on the health of medium-sized firms – real human
partnerships – so I am as passionate as anyone about securing their future.
ABSs (plus globalisation and technology) will create both significant opportunities and major threats. There will be no risk-free options, and standing still may be the biggest risk of all. My fear is that the profession will try to hold on to what it understands and leave the opportunities to new entrants to the market. The biggest firms can look after themselves. The LMS has to show the way for other firms to ensure that does not happen.
I have a reputation as an innovator and lateral thinker – my seminars have been described as frightening but invigorating. If this different perspective can help the LMS in supporting those firms which are serious about their business future, I shall be very pleased.
Likes: Golf, fresh air, watching sport, radio, food, country music.
Dislikes: Airports, dieting, blockbuster novels.
If you would like to discuss any of the issues raised here with Barry, please email email@example.com.