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Outcomes focused regulation (‘OFR’) was introduced on 6 October 2011 and despite much publicity within the profession, evidence suggests that not all law firms have made significant strategic business changes as a result.
I’m not going to concentrate on the technical compliance issues here. I want to cover the much more interesting impact of OFR on how law firms run as businesses. It could be argued that the commercial business aspects of OFR should force lawyers to do what perhaps they should have been doing anyway, which is to run their businesses as businesses.
According to Principle 8 of the SRA Handbook “you must run your business or carry out your role in the business effectively and in accordance with sound financial and risk management principles”.
Will turning sound business sense into a compliance requirement force lawyers to change the way they run their businesses? Or, should the wider issues in the market being doing that anyway?
Outcome 7.4 of OFR contains the requirement to “maintain systems and controls for monitoring the financial stability of your firm”. Indicative Behaviours of meeting this outcome include:
Is relying on your external accountant preparing your annual accounts months after the period to which they relate sufficient to comply with this compliance requirement? Is it sufficient for you to respond to the almost daily changing factors in the legal services market?
I believe that all law firms should have this at the top of their priority list of action points. Prudent financial management is key to client service continuity based on a sustainable law firm that can deal with changes including The Legal Services Act; banning referral fees, removing work from the scope of legal aid and the Jackson reforms tied up in LASPO; the recent crime legal aid tender process; reducing recoverable costs in, and extending, the personal injury fast track portal; and potentially extending the portal.
Have you prepared a detailed bespoke business plan covering all of these impacts on your business? Does it include cash flow, profit and loss and balance sheet forecasts? Have you undertaken steps to maximise performance, utilisation and recovery? Have you undertaken a review to identify ways to reduce the length of time taken between performing work for clients and getting paid for it?
Armstrong Watson can help you. Our specialist legal sector team can prepare cost effective business plans and forecasts and we can work with you to boost your profitability and cash management.
Please contact your local office to arrange to further discuss how we can help you, or contact me on 07828 857830 or firstname.lastname@example.org.
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