As the profession gears up for the changes to come over the next year, discussion centres around the impact across the sector. No doubt there will be wide-ranging consequences for firms in different geographical and commercial markets, and individual experiences will vary.
The Law Firm Investment Profile
Perhaps more pertinently at the SME end of the market, different work types will also face different challenges – and will attract investors with different goals and priorities. Of course, many firms will resist the lure of external investment and the management changes that will bring.
However, for those firms where embarking on such a relationship is desirable (or unavoidable), it will pay to be aware what the investor is looking for – and whether that fits with the work types and commercial profile of the organisation.
Short Game vs Long Game
The analysis surrounding external investment has so far focused on ‘Tesco Law’ and the impact this may have on firms seeking to compete in lower cost, more transactional work types. Areas such as conveyancing and low cost wills will be attractive for investors seeking quick cash returns. We have commented elsewhere on the need for differentiation in the marketing strategy, and for disciplined financial management. Those firms that consciously take this approach will find that they can compete in these markets and may well be attractive investment targets.
Conversely, practices such as personal injury, clinical negligence, some litigation and probate will not attract those investors looking for quick cash. However, these are extremely profitable work types that, properly funded, can bring consistent returns over longer periods.
Firms engaging in these work types should therefore give serious consideration to how they will continue to fund work where the cash may not arrive for 2 or more years, and how they can balance their portfolio to keep the firm’s balance sheet healthy. If this can be achieved, there will be investors willing to play a more patient game – providing the business promises sufficient returns.
Attractive Law Firm Businesses
Regardless of the position in the market and the profile of work undertaken, firms must take the question of management for profitability and cash flow more seriously than ever before. Those firms that do will find that, whatever the aims of individual investors, they will be in a strong position to make healthy profits in an increasingly competitive market.