Nick Sanders, Managing Director at Iceberg, outlines three key measures law firms can take to weather the perfect storm of coronavirus and seasonal downturn this winter.
There is no doubt that the coronavirus pandemic has shaken the legal sector and created a seismic shift across the industry. There are likely to be sustained cashflow challenges as firms adapt to the “new normal”, and careful managing of overheads will be needed to ensure a smooth transition.
Many firms are facing steep increases in expenses as the full cost of staff returning from furlough coincides for many with the need to renew Professional Indemnity Insurance (PII), with premiums costing between 15% and 20% more than last year. Additionally, many firms will face deferred partners tax payments and VAT payments, now due in January and March respectively.
On top of this flurry of costs, the industry will likely face the usual slump of activity that is characteristic of the festive period, where overheads remain high but earned fees dip.
There are three key measures legal firms can take this autumn to prepare to weather this ‘perfect storm’ this winter.
1. Review office needs
We are already seeing a slowdown of premise commitments in the industry – reviewing office arrangements is a logical first step to reducing overheads. With most members of staff still working from home, legal firms must consider whether they want to reduce office space on a permanent basis. It makes sense to base this on feedback from employees and on whether there is an appetite for long-term flexible working.
2. Introduce new lock-up processes
Lock-up also continues to be a hot topic for law firms, and now is a good time to commit to running this more efficiently. Firms can consider whether new processes can be implemented to ensure fee earners and finance teams work more efficiently together to secure payment of fees within a strict time period. Firms can introduce targets and incentives to securing fees paid within a certain timeframe, or train fee earners on the importance of this.
3. Consider new finance options
Firms can consider a number of financing solutions available around PII and tax payments to manage some of the liabilities due in the next few months. Choosing the right financing solution will ultimately reduce the amount of capital the firm needs to operate over the next few months, which will provide invaluable breathing space as we navigate the new normal.