The last six months has introduced significant challenges for the legal sector.
The shutdown of areas such as real estate during lockdown has hurt revenues, while businesses large and small have had to adapt to working remotely with both clients and the courts.
After weathering the initial impact of the pandemic, law firms will now be looking at how they can adapt to a significantly changed business environment and tackle ongoing financial and operational pressures head-on.
This will be no simple task. But there are five key areas firms can focus on to help put them on the strongest possible footing.
In such an uncertain business environment, improving liquidity and cashflow will be a key focus.
Assess your financial position
A solid understanding of a business’ financial position, and how it might change, should underpin any planning for the road ahead. Knowing how much you have – or are likely to have – to meet day-to-day costs and make new investments, and being able to anticipate any major pressure points will help boost your overall resilience and should be a law firm’s top priority.
Thorough cashflow forecasts should be undertaken as a matter of urgency. These should be run on a weekly basis and in granular detail, with the horizon expanded from the usual 12 weeks to 26 weeks.
In such an uncertain business environment, improving liquidity and cashflow will be a key focus.
To help with this, firms should identify and reduce any non-essential overheads, issue invoices as quickly as possible and follow-up with outstanding payments where it is appropriate to do so.
They can then identify where further support – such as financing from a banking partner – might be required.
Review and adapt your business
The marketplace has changed, and law firms will need to consider how they can adapt to remain competitive, including by challenging longstanding assumptions about the way things worked before coronavirus.
This will help identify new opportunities, review how their firm is positioned to capitalise on them and how they can make their businesses more operationally or financially efficient or effective.
As well as researching market trends, it could be valuable for a firm’s management team to speak with existing clients to understand their experiences of working with the practice over the past few months – their insight into what worked, and what didn’t, might spark ideas for new markets or services.
Clients might be able to share some feedback on new ways of working and advise on what they would welcome to support them in their own recovery – ultimately helping a firm retain their custom over the longer term.
The second half of the year will see law firms renew their professional indemnity insurance (PII) – a mandatory trading requirement.
The insight of employees who have worked within a business throughout lockdown can also be valuable in helping it to plan ahead.
Staff could, for example, help identify areas where they would benefit from further training to better respond to client needs.
In some cases, adaptation could mean a degree of homeworking. Here, businesses will need to think about any technological investment this might require, and how they will fund it.
In these quickly shifting conditions, no adaptations should be set in stone.
Firms should regularly review any changes, monitor the results against their wider strategy and not be afraid to make further changes as they see fit.
Communicate, communicate, communicate
Strong communication with clients around how firms have been tackling COVID pressures will have been a key tool in firms’ business continuity plans over the last few months.
As we enter the recovery phase, this communication shouldn’t be left behind. Continuing to keep clients in the loop, particularly when it comes to any operational changes you make that could affect them or any new services you announce, is vitally important.
Ultimately, this will help give them confidence in continuing to move forward with you and help them understand exactly how you can support their own objectives.
Prepare for protection
The second half of the year will see law firms renew their professional indemnity insurance (PII) – a mandatory trading requirement.
PII can be one of a law firm’s largest single annual expenses, and premiums have recently been on the rise.
COVID-19 has only exacerbated the impact this will have, leaving businesses already under strain facing premiums up to 50% higher than the previous year.
Firms will need to be aware of – and be prepared to address – factors that might affect the price of premiums or compromise their ability to obtain cover in the future.
In the wake of the pandemic, insurers will likely want to know what advice firms are giving their clients in relation to coronavirus, and how their business continuity plans have changed and are being implemented, as lockdown restrictions have been relaxed.
A law firm’s staff are, and will continue to be, its most valuable assets.
Practices lacking robust IT security and back-office systems might see their premium and run-off cover notably increase if they fall victim to fraud or a data breach, while practising in ‘high risk’ areas – such as conveyancing and wills and probate – can affect the costs of PII and dissuade some insurers from offering insurance at all.
Investing in modern IT technology and cyber-risk management procedures can help firms reduce vulnerability to cyber-attacks, while submitting claims summaries for at least seven years and maintaining a comprehensive record of a firm’s claims history – evidencing what procedures have been put in place to stop similar events happening again – will help insurers better assess risk.
Given the potential cost of PII, some firms will want to manage its impact on their cashflow – particularly if their working capital has been affected by coronavirus pressures.
Fortunately, there are specialist products available to help spread the costs of PII in the longer term, for example over 12 or 18 months. A financial adviser can help businesses understand what these products are and whether they’re suitable.
Don’t forget your staff’s wellbeing
A law firm’s staff are, and will continue to be, its most valuable assets.
While there will be an ongoing focus on making offices and workplaces ‘COVID-secure’ for staff returning to work, it’s important to also consider colleagues’ wider wellbeing and mental health.
Some may find it difficult returning to the office after a stretch of furlough, for example, and may require some additional support to help them get back up to speed.
Others may still be working from home and feel isolated from the wider team. It will be important for their wellbeing – and for the integrity of the wider business – that they continue to be included and informed on any relevant developments.
There are resources available to help staff who may be experiencing mental health or wellbeing difficulties. For example, as part of our online Wesleyan Wellbeing platform, we’ve launched a web-based psychological triage assessment service that gives users access to clinical consultants who can advise on wellbeing, as well as offer virtual cognitive behavioural therapy and physiotherapy if required.
No one can say for sure what lies ahead. But keeping factors like these in mind will help firms effectively manage any further disruption and support their ongoing resilience.
At Wesleyan, we have a team of expert advisers dedicated to supporting businesses in the legal sector navigate financial challenges and can offer products and services specially tailored for firms’ requirements. Those looking for additional information should visit: https://www.wesleyan.co.uk/sectors/funding-solutions-for-legal-firms.
This information is based on our current understanding of legislation. The information contained in this article does not constitute financial advice.
