During the COVID-19 pandemic, the government have announced a raft of measures to support businesses with the sole intention of protecting as many companies and livelihoods as possible. Although we don’t know for sure what will happen in the near or long term future, it is clear that the government will not be able to offer this support indefinitely. Many law firms, have understandably focused on the short term shock of what has happened, organising home working, furloughing staff and deferring payments where possible to preserve cash flow.
It is now time to start looking to the future and to consider what your law firm will require and look like going forward, to give your firm the best chance of survival.
Armstrong Watson is a member of the APA – an association of leading UK Accountancy firms. APA members recently surveyed their clients on the current impact of the Coronavirus. Some key findings from the respondents who are ‘professional services firms’ were:
53% reported that turnover has reduced by over 30% due to Coronavirus, with 16% stating a reduction of over 70%;
Only 39% have more than 12 weeks’ worth of cash in the bank;
64% stated that the job retention scheme was ‘absolutely critical’ in terms of ability to maintain staff.
The above statistics demonstrate that March and April has been very difficult for law firms, however, prior to that many had had a fantastic year, which along with ongoing open matters will have helped generate production and cash flow to see them through this initial period (particularly when combined with the JRS, and payment deferments).
However, it is important to realise that tougher times are still to come.
You should now be considering (and ideally modelling) the financial position of your firm when (not if!) government support ceases, when work levels and new instructions are lower than previous times and the deferred payments, as well as tax bills from previous success, put pressure on cash flow.
What does this look like for your firm? This is both, most critically from a cash flow and survival point of view in the next 12 to 18 months, but you should also take the time that you currently have, to reflect on what you would like your law firm to look like in the future. Considerations, which will also impact your cash flow, will include:
How you deliver legal services - face to face, remotely, lean management?
What legal services do you deliver and to where - diversification?
What impact does this have on your staffing requirements?
What resources do you require to achieve the above– technology, office space?
It is clear that the current situation is very fluid, and law firms have responded and adapted well so far. The coming months are likely to be even tougher for everyone, and forward planning now is essential to allow you to make informed management decisions quickly as and when they are required.
To discuss planning, cash flow management or other issues raised in this article, please contact Rosy Rourke on 07557 951148 or email her on the link below.
