Accounts analysis forecasts grim future for over 500 law firms
January 25, 2017
Legal Futures reports on research carried out by Opus Restructuring using data from the financial health monitoring specialists, Company Watch, which shows that 34% of all solicitors’ practices in the UK are at risk of failing because of their financial fragility.
Opus analysed the accounts of over 6,000 law firms and found that some 2,000 were in the Warning Area on the Company Watch database.
Opus’s business risk adviser, Nick Hood, said that statistically one in four – 500 – would be expected to fail over the next three years, but the number could be higher: “Given how tricky things are in the legal sector, the attrition rates among solicitors’ practices could be higher than that statistical average.”
He advised that this was “a time for remembering that a solicitor’s practice is not just a professional services firm, it’s a business. They need to be run like businesses – maintaining tight cash flow management [and] tight overhead control.”
He continued that law firms’ use of technology was crucial: “There is little doubt that the firms that have good technology and are not frightened to use it are going to come out of this better than the ones who are trusting to old-fashioned and inefficient methodology.”
He said “middle-rank, mid-market, and slightly bigger firms” that had not yet adopted fixed fees needed to change fast, although he acknowledged that moving from billable hours to “value-based fee charging” was “not an easy transition”.
Mr Hood – a one-time insolvency specialist who also had a spell as a non-executive director of legal costs firm Kain Knight – urged firms to swap partner managers for business people: “I wince every time I hear about a lawyer I know well being made managing partner of some firm and think ‘the time for lawyers managing legal practices has gone’ – they’ve got to be run by business-minded executives.”
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