Like many other industry sectors at the moment, the legal sector is facing considerable challenges in the coming months, as a result of the coronavirus pandemic. Rather than impacting just one department, demand for all commercial and individual legal services is likely to be impacted in some way, so how will senior partners respond?
Cash is even more king
There have been some encouraging noises from the government and the chancellor in recent days and the new £350bn business support package (announced yesterday) should help to alleviate some of the pressure on businesses of all sizes during the crisis. Of course, some of this support will be available to law firms.
While government-backed loans, grants, help with statutory sick pay and more time to pay HMRC are all welcome of course, there are some steps that law firms can take immediately to ease pressure off cash flow. Taking action now could help to protect employees and preserve business continuity.
As is often the case in challenging or uncertain situations, decision makers should start by considering any low-hanging fruit when looking to improve their organisation’s cash management. It makes sense to ensure the firm’s bank accounts have sufficient liquidity, with overdraft facilities in place where needed. Debt management should also be a primary focus, as well as ensuring that any work in progress is crystallised into fees, where there is opportunity to do so. It is important to stay close to clients and suppliers at this time, as they are likely to be experiencing challenges of their own and it may be necessary to ease pressure in some areas or find ways to share the financial burden.
The old adage that cash is king has never been more true. The firm’s cash-flow projections should be reviewed on a weekly, if not daily basis, looking at least three months ahead on a rolling basis. This will help to identify any near-term peaks or troughs, at the same time as keeping sight of any impending tax payments and other regular payments that might fall due just outside the immediate three-month period. Assuming staff have been provided with remote working advice and client communications are established, this focus on cash management should be top of the agenda for partner meetings to ensure agile decision making.
It’s time to stress test your finances
Every firm should undertake cash-flow forecasting and stress test their finances as part of their business response to the coronavirus pandemic. This should involve considering the sensitivity of activity levels across all teams feeding into the firm’s overall plan. The capacity of the firm should also be kept under review and communication with staff is vital to ensure they understand the approach the firm is taking and how that may affect them going forward depending on the how long the crisis lasts. It is important to seek advice in areas such as cash-flow forecasting and people management if you lack specialist skills in these areas, particularly as it is important to stay focused on client services and strive to maintain business as usual as far as possible.
Staying in touch and sticking to processes
Remote working for lawyers is not as difficult as it is for some other businesses given that remote working is largely similar to being at your desk. However, it does bring some challenges when it comes to collaborating within the team, the firm and with clients. Many transactions and projects move forward much quicker with face-to-face meetings but video technology may soon be the new norm.
Other operational challenges include ensuring adherence to internal risk and take-on policies, where fee earners are remote working. This is not the time for people to start dabbling in new practice areas simply because collaboration with colleagues has become a bit more tricky – normal rules apply! Also beware coronavirus cyberattacks, which can take many guises, Fraudsters are out there already, thinking up new ways of accessing your clients’ monies, so it is important to beware.
Remote working should also be controlled and where timesheets are in use, these should be completed on a daily basis. The ability to track the amount of activity around the firm can provide a crucial key performance indicator; giving you advance warning of any cash-flow troughs in the pipeline and informing your cash-flow projections.
Agile decision making is key
While taking steps to reduce staff days and hours is never pleasant, it may well become necessary in the weeks and months ahead. Making sure employees understand how the crisis is affecting the business – both financially and operationally – is absolutely critical. Difficult decisions may need to be taken and it is obviously going to be much easier to do this if employees appreciate the reasons why it has become necessary.
Finance managers and partners should consider the support package made available by the government fully. As well as taking advantage of extended time to pay arrangements with HMRC, any appropriate reductions in payments on account that should be made at the end of July especially could be very attractive. In the short term, items such as professional indemnity premiums could be financed, assuming this hasn’t been done before, to ease pressure on cash flow over the next couple of months.
As always, it is important to seek advice before taking action take to ease pressure on cash-flow or adjust to new working arrangements. Most firms have access to trusted advisers and now is the time to make use of them.
Peter Noyce is partner and legal sector specialist at Menzies LLP and author of ‘Brighter Thinking for Law Firms’