Partner Article

Covid-19: financial recovery strategies for law firms from Mitchell Charlesworth

Mike Buxton, head of professional practices at Mitchell Charlesworth, discusses the impact of the Covid-19 pandemic on law firms and post-lockdown strategies for financial recovery.

During the last 9 months we have seen all industries affected by Covid-19, including professional practices, which have felt the impact in many different ways depending on their area of law, size and readiness for a paperless way of working.

Once the initial panic had subsided, a number of firms took the downtime as a positive and started to look internally at their business, clients, employees, culture, procedures and office space.

Working practices have become more flexible and fluid in order to keep ahead of competition and ensure that the business keeps delivering when it needs to.

Looking to the future, there are greater issues concerning the business as a whole. The financial pressures on the firm’s clients and suppliers will become apparent over the next few months as the Corona Virus Job Retention Scheme (CVJRS) comes to an end.

This in turn may bring pressures on law firms to find alternatives to the hourly billing model currently in place. The automation of junior solicitor work may become an opportunity or a threat to your business.

The pandemic has merely accelerated the process that was already affecting law firms of how to match the client’s needs and wants with an increasing pressure on costs, whilst still making a profit for the firm.

Financial recovery

Firms should now turn their attention to survival and market share. Firms which embraced change during lockdown should not return to what they were doing before. Doing so would risk losing market share to innovative firms who have seen the changes made as a positive and are now working towards this. Firms should now be concentrating on:

• Cashflow. As clients feel the pinch they will extend payment terms and legal firms need to be ready to be able to cope with this drain on cash. Firms should be familiar with their cash flow as “cash is king”. Ensuring firms have a handle on the cash in and out flow, can identify the need for new resource in different areas.

• Management information. This will be crucial and should be reviewed on a timely basis. This will allow the firm to be agile and can help with strategic decision making. It can be used to highlight deficits and additional funding requirements.

• Work in progress/debtor days/pipeline. All firms should have a good knowledge of their WIP, they should ensure their WIP is billed up to date, perhaps bringing in interim billing to ensure WIP does not get out of control on clients who ultimately cannot afford to pay. On the back of this, a review of debtor days and tight debtor control management is key to getting in the all-important cash once the work has been completed. The pipeline of new work is also a key tool to effective strategy planning. If work coming into the business is slowing down, what is the strategy to kick start this again or is a review of headcount required. Mitchell Charlesworth can help you with detailed cashflow forecasts, preparing and interrogating management information and anaylsing current working procedures to ensure that WIP is turned into cash in the most efficient way. We can also help with new cloud accounting functions to bring the accounts department up to date and more efficient.

• Systems and procedures. With all the rapid changes to working practices and moving around of personnel, all firms should be conscious of the impact this may have on their systems and in-house working policies. They should be especially mindful of any procedures that are in place to prevent a breach of the solicitors accounts rules. Are all procedures still fit for purpose and have new systems to prevent breaches been documented? At Mitchell Charlesworth we have been asked by several firms to complete internal reviews of procedures and systems to ensure they remain compliant. We have also assisted a number of firms with the writing and implementation of new procedures and systems.

• Staffing. With all professional firms, staff are the main selling point but also the main cost. A full review of all staff from admin up to partner level should be undertaken and a plan of action identified. Can under utilised staff be retrained and used elsewhere in the business? If the firm is overstaffed, then redundancies may be required. Identifying the needs of employees and their issues can also ensure you have an efficient workforce.

• Clients. Ensure that you stay close to current and previous clients. During this time of uncertainty, most businesses will require some legal advice at some point. Make sure you communicate regularly, whether this be free content on your website or by making contact via email and telephone to ask how they are and if there is anything they need help with.

• Communication with staff. Although this can be a stressful time for the firm and its owners, it is important to remember that your number one asset is the staff you have now. Ensure that you have regular and open communication with them regarding the business. The happier the work force, the better the business will get through these difficult times.

This has not been an easy time for many law firms, however a number of them have used this time in a positive way, to determine what they need to do to ensure that the business comes out of this in the best possible shape.

This was posted in Bdaily's Members' News section by Anne Griffiths .