Covid-19: financial recovery strategies for law firms
Mike Buxton, head of professional practices at Mitchell Charlesworth, discusses the impact of the Covid-19 pandemic on law firms and post-lockdown strategies for financial recovery.
During the last 9 months we have seen all industries affected by Covid-19, including professional practices, which have felt the impact in many different ways depending on their area of law, size and readiness for a paperless way of working.
Lockdown – Initial panic
The start of the pandemic was a worrying time for most law firms; overnight many were having to force themselves to embrace the world of technology and move large workforces from the offices they had occupied for years to individual home desks.
Although there were some obvious teething problems, most firms managed quite quickly, with the help of their IT teams, to ensure all staff had the equipment they needed to operate as efficiently as possible at home.
Some larger firms were already ahead of the game, with home access to cloud servers already an option, however some firms had to put a large injection of time and money into ensuring their business could cope with these new challenges and a few continued as they had done and worked from the office on a skeleton staff.
Mostly finding that their IT systems were up to the job, they turned their attention to income streams and the affect the pandemic was having on these.
- Conveyancing (although now recovered) and corporate saw an immediate drop off
- Family (although for dark reasons) increased their workload
- Employment went through the roof (furlough and redundancies).
With courts closed, work in progress (WIP) started to build with no end in sight for cases. No one could move house or premises. Everyone was worried about their employees and the effect furlough would have on their business.
Time to reflect
Once the initial panic had subsided, a number of firms took the downtime as a positive and started to look internally at their business, clients, employees, culture, procedures and office space.
Most of the time businesses continue working the way they have done for years because that has worked for them. It is tried and tested, and no one really has the time to think, “Could this be done better?”. The time during the full lockdown, although a stressful time, allowed firms to look inwards.
Many initially focused on which of their clients needed help immediately, which clients were going to struggle, and which clients were not going to survive, and prioritised their workloads accordingly.
The focus then moved to employees; did the firm have the correct staff mix, and did they need to review headcount? Were there too many administration payroll costs that were not adding anything to the bottom line? Were or are redundancies an option to change this?
Firms looked at whether they could change internal and external procedures to be more efficient and offer a better overall service. They considered whether clients still valued a face-to-face meeting or if they were happy with a video/telephone call, saving on travel costs as well as precious work time.
Also under review was whether a full office requirement would be needed in the future, or could working from home save on large city centre rent and rates bills. Many looked at whether the business could continue with a smaller office and utilise the IT capacity, that it had always had, to ensure that staff can work from home without it being detrimental to the business.
Working from home
Most firms found that staff were working more efficiently, and were happier working from home with less distractions, and no long morning and evening commutes to drain energy. Employees saved money by not having to commute to the office, buy their lunch, etc, and therefore received a virtual pay rise. The flip side to working from home was that some felt isolated and that they missed the office collaboration and face-to-face meetings.
Video calls became the norm, face-to-face meetings were not required, the world continued to need legal advice and firms delivered this in the best way they could.
Staff morale and mental health became a big aspect of the pandemic and firms have found new ways to keep everyone engaged and upbeat, from weekly Bingo sessions and evening drinks to lunch time quizzes and online training.
The new normal
Are some of the lockdown findings here to stay?
Following the easing of lockdown restrictions, there was a real effort to get some staff back to the office, those who were struggling with working from home or needed more supervision to work effectively, however, in order to do this new strategies were invented. Health and safety reviews of the current offices were completed, with furniture moves, deep cleans and part-time rotas for all.
Some firms have decided that all staff can stay at home until at least next year, whereas some have wanted a return to the office as soon as possible. All have followed the government guidance and tried new ways, such as staggering arrival and departure times, reducing daily numbers, and ensuring social distancing is a priority, with face-to-face meetings only being held if crucial.
In the short term these changes are here to stay and working practices will need to be flexible and fluid in order to keep ahead of competition and ensure that the business keeps delivering when it needs to.
Over the longer term working from home will need to be continued to a certain extent, which appears to be a positive for most firms and their staff. However, firms must be mindful of the mental health issues this can bring and ensure communication with staff is up-to-date and continuous.
Beyond this lie several greater issues concerning the business as a whole. The financial pressures on the firm’s clients and suppliers will become apparent over the next few months as the Corona Virus Job Retention Scheme (CVJRS) comes to an end.
This in turn may bring pressures on law firms to find alternatives to the hourly billing model currently in place. The automation of junior solicitor work may become an opportunity or a threat to your business.
The pandemic has merely accelerated the process that was already affecting law firms of how to match the client’s needs and wants with an increasing pressure on costs, whilst still making a profit for the firm.
Firms should now turn their attention to survival and market share. Firms which embraced change during lockdown should not return to what they were doing before. Doing so would risk losing market share to innovative firms who have seen the changes made as a positive and are now working towards this.
Firms should now be concentrating on:
As clients feel the pinch they will extend payment terms and legal firms need to be ready to be able to cope with this drain on cash. Firms should be familiar with their cash flow as “cash is king”. Ensuring firms have a handle on the cash in and out flow, can identify the need for new resource in different areas.
- Management information
This will be crucial and should be reviewed on a timely basis. This will allow the firm to be agile and can help with strategic decision making. It can be used to highlight deficits and additional funding requirements.
- Work in progress/debtor days/pipeline
All firms should have a good knowledge of their WIP, they should ensure their WIP is billed up to date, perhaps bringing in interim billing to ensure WIP does not get out of control on clients who ultimately cannot afford to pay.
On the back of this, a review of debtor days and tight debtor control management is key to getting in the all-important cash once the work has been completed.
The pipeline of new work is also a key tool to effective strategy planning. If work coming into the business is slowing down, what is the strategy to kick start this again or is a review of headcount required.
Mitchell Charlesworth can help you with detailed cashflow forecasts, preparing and interrogating management information and anaylsing current working procedures to ensure that WIP is turned into cash in the most efficient way. We can also help with new cloud accounting functions to bring the accounts department up to date and more efficient.
- Systems and procedures
With all the rapid changes to working practices and moving around of personnel, all firms should be conscious of the impact this may have on their systems and in-house working policies. They should be especially mindful of any procedures that are in place to prevent a breach of the solicitors accounts rules. Are all procedures still fit for purpose and have new systems to prevent breaches been documented?
At Mitchell Charlesworth we have been asked by several firms to complete internal reviews of procedures and systems to ensure they remain compliant. We have also assisted a number of firms with the writing and implementation of new procedures and systems.
With all professional firms, staff are the main selling point but also the main cost. A full review of all staff from admin up to partner level should be undertaken and a plan of action identified. Can under utilised staff be retrained and used elsewhere in the business? If the firm is overstaffed, then redundancies may be required. Identifying the needs of employees and their issues can also ensure you have an efficient workforce.
Ensure that you stay close to current and previous clients. During this time of uncertainty, most businesses will require some legal advice at some point. Make sure you communicate regularly, whether this be free content on your website or by making contact via email and telephone to ask how they are and if there is anything they need help with.
- Communication with staff
Although this can be a stressful time for the firm and its owners, it is important to remember that your number one asset is the staff you have now. Ensure that you have regular and open communication with them regarding the business. The happier the work force, the better the business will get through these difficult times.
This has not been an easy time for many law firms, however a number of them have used this time in a positive way, to determine what they need to do to ensure that the business comes out of this in the best possible shape.
If you have any queries regarding the issues mentioned in this article, or would like to have a general conversation with Mike Buxton (below) or a member of the team, please do not hesitate to contact us.