For firms practicing the law, finance has become a more fundamental issue than ever before.
As highly profitable businesses with large client accounts, law firms in the UK used to be in a uniquely privileged position vis-à-vis their lenders. This allowed them to operate a business model whereby they retained a minimal amount of capital in the firm, partnership profits were high - and partners were used to drawing profits often before the cash had even been received.
Unfortunately for many partners, the situation has changed over the past four years, and regulatory changes combined with developments in the market mean that the financial pressure on firms is becoming more intense than ever.
Put simply, legal finance departments and advisors must make clear to partners that effective financial management is now a necessary (though not a sufficient) condition for success.
It all starts with analysis
Diagnosing the problem and recommending a course of treatment is impossible without thorough analysis.
When it comes to cash flow, our wealth of experience means that we can get a picture very quickly of the main blockages and leakages in the firm’s pipeline. We can then move swiftly on to delivering a solution that will get cash flowing again and provide the necessary room for manoeuvre in other areas of the business.
Cash flow is often the short-term imperative, but for the partnership profit and the business model can be the more fundamental issue. Law firms are largely fixed cost operations, and these significant overheads make it difficult to respond quickly to a fall in revenues. A drop in billing will often lead directly to a disproportionate reduction in partnership profits, so that a 10% fall in revenues could mean as much as a 50% fall in profits.
In this context, cost management is a vitally important element of profitability. We have been helping law firms to reduce their cost bases since the early 1990s, and have developed a great deal of expertise in adapting cost structures to meet the firm’s requirements.
Whether you need to cut overall costs, improve efficiency and make better use of technology, or adapt your model to introduce greater flexibility in staffing and outsourcing arrangements, we have the expertise to deliver results that have a lasting impact on your bottom line.
Helping Independent Law Firms Stay Independent
For many independent law firms, what is at stake in the next few years is their very independence. If you are a partner (or work in a legal finance department) in an independent firm, and are concerned that your independence may be threatened, then inaction is not an option.
In addition to our 90 Day Finance Programme, designed to deliver rapid financial results for firms facing short-term difficulties, we have developed a service driven by the Independence agenda to help firms identify the actions they need to take to ensure they maintain their independence.
If you would like a conversation about how we can help you achieve your own unique objectives, please contact us (link).