Expert View: Business Direction

Business Direction

Managing a law firm during the pandemic has arguably been an easy job. In the heat of a crisis, the partners gave the management team a free hand to do what was necessary to protect the firm, without the need to consult over every decision. Plus, the Managing Partner essentially only needed one word – ‘no’ to investment, ‘no’ to partner distributions, ‘no’ to discretionary spend and ‘no’ to any long term strategic planning; the firm just needed to get through the pandemic intact.

Of course, in the majority of cases this approach has worked remarkably well: income kept flowing, costs were slashed and most firms ended the last financial year with increased profits and record levels of cash.

But with the pandemic (hopefully) now behind us, the old challenges have resurfaced and management needs either to dust down its existing strategy or perhaps more likely, update the strategy in line with the new world that has emerged, armed with new lessons from the pandemic.

Flexibility will be the key word going forward, both on real estate footprints and how the firm engages with its employees. Future real estate costs should decrease, although this may need to be set against increased IT spend. Employees may become more demanding in terms of flexibility, but if roles can be done from home, maybe people don’t need rewarding at the same level. It is no surprise that adapting to new ways of working is seen as one of the key challenges over the next two to three years.

However, these must not detract from some of the key long standing challenges for firms. Looking externally, firms must focus on how they differentiate themselves from their competitors so that growth (profitable growth) can be achieved. Is this possible with the current expertise or does the firm need a fundamental shift that can only be achieved by a merger to provide critical mass and credibility? Alternatively, should the firm de-merge to become specialised?

Looking internally, has the firm got the ideal structure and ownership model that will support and enhance the strategy? While the pros and cons of LLP versus company may be finely balanced for some, increasingly, challenges like governance, funding, succession are starting to tip the scales towards operating as a company. This may not be enough to require a change, but will the expected changes to partner taxation and the acceleration of tax payments prove to be the catalyst?

As such, funding may be squeezed just at a time when firms might need it the most to invest in the future. The solution is easily to hand in the form of improving lock up, but let’s be honest and say that previous approaches of tinkering with processes has not worked. Radical changes to the level of credit given to clients need to be implemented to give firms the opportunity to deliver their strategy. Put another way, I doubt there will be many successful firms in five years’ time who still allow their clients to pay over three months after they have invoiced them.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.