Financial stability top priority for law firms, says adviser
Law firms need to make achieving financial stability their number one priority if they want to survive in a changing legal landscape, according to a leading adviser to the sector.
A series of fundamental changes, including the new competition from alternative business structures, more stringent compliance demands, the Jackson Reforms to litigation funding, and reductions in legal aid funding have put enormous financial pressure on legal businesses.
Karen Hain, head of the professional practices team at MHA, believes that while many law firms have responded positively to the changes, thousands more are at risk of financial turmoil because of a lack of a clear growth strategy and a reluctance to change.
MHA is an association of nine independent accountancy firms across the UK who collectively advise over 150 legal firms and over 500 partners.
Karen, who is also a partner at member firm Moore and Smalley and a qualified Lexcel Consultant, said: “If you survey the UK legal sector, there are some excellent examples of law firms mixing strong financial management with innovation and creativity to build successful businesses, many of them benefiting from the external investment that the Legal Services Act has allowed. These are the ones that planned early and got in their house in order at the beginning.
“There are also many firms heading for potential oblivion, having responded too slowly to the monumental changes that have taken place over the last few years. These firms have limited options for securing their financial future and for many it will already be too late.
“There are many more legal practices caught somewhere in the middle of these two ends of the spectrum, still adapting to the changes and trying to chart their path to financial stability. Getting onto a firm financial footing and developing new growth opportunities are absolutely critical requirements for survival.”
Moore and Smalley has produced a guide for legal businesses entitled Financial Stability for Law Firms. The guide covers five key areas for financial stability, including financial management, business plans and strategy, cashflow and profitability, business structures and tax, and mergers.