Get Your Law Firm Forward-Thinking on Finance
For many law firms, the disruption following the pandemic has been the catalyst needed to reflect on the extent to which their business is thriving and what action is needed to achieve future goals.
With law firm operating costs higher than ever, it is likely that there will be some significant consolidation over the next couple of years. With change comes opportunity, however, and the current situation offers substantial scope for UK law firms to redefine their idea of success and make a targeted effort to achieve it.
For some, it may be the right time to sell, and this should be approached proactively. By cutting costs, increasing income from fees, and improving cash flow, a business will be more attractive to buyers. Financial commitments will need to be analysed to ensure they are as efficient and effective as possible. A precise operating model and a robust business plan, undertaken by the whole team, are important. Buyers will look at cash flow, so look at forecasting to ensure that the firm is as lean as possible, with debtors reduced and financial targets on track.
Looking at every detail will put your business ahead of the competition when it comes to selling. If you can demonstrate that your operation is financially sound, well run, and lean, you will stand the best chance of commanding a good price.
For those looking to acquire another firm, shoring up their reserves and knowing how best to fund the project is key. A firm with funds ready to go or that have been provisionally approved by a lender is a much more attractive prospect to a seller than a firm that has not made inroads into raising the capital required.
Outsourcing is becoming big business in the Legal sector. Two Calico founding members, Documents Direct and Cashroom, who provide the legal sector with transcription/document production and cashier outsourcing services respectively, have seen significant growth over the last couple of years.
As more and more law firms review their headcounts and fixed costs, outsourcing with reputable trusted legal services suppliers is often a quick and very successful way of increasing the bottom line.
With many staff members still working from home, alongside the opportunity to engage top-quality outsourced help, there is a clear opportunity to reduce expensive office space. Some businesses are leaving luxury city centre premises and taking on more cost-effective space elsewhere or smaller, boutique offices in the city centre to meet clients, but for the most part, taking advantage of cheaper space and an easier commute for much of the day-to-day business.
Increasing fee income
There are a number of ways that fee income could potentially be increased. The wide range of software options available means that low-value work can be digitised and fee earners used more effectively on more complex matters.
Focusing on targeted marketing has the potential to bring in quality clients in the market segments you want to concentrate on. Exploring new markets for possible expansion or acquiring a competitor could add considerable value to a business.
Taking on more fee earners, with the expectation that they will bring in more business, or promoting junior partners to equity partners to encourage new thinking and strategies can also stimulate growth.
At Acorn Business Finance we find that once costs have been cut and a firm is operating efficiently, business growth often follows. Partner and staff confidence is boosted by the understanding that the business is running well and focus on financial targets can be clearer.
Many law firms need the help of external financing at some point during their existence. It could be to fund growth, to achieve new aims, to step up to the next level of operation, to fund a merger or acquisition, or simply to help with general day to day cash flow.
Some costs are almost certainly expected to increase in the short term, including professional indemnity insurance and the level of bad debt. There is also an expectation that merger and acquisition activity will increase.
The right business loan will not be a burden, rather it will help a business move to the next stage of its development. By targeting financing to the area where it is needed most, law firms have the ability to adapt and take on challenges and opportunities.
In considering where your emphasis should be when arranging finance, you should look at not only the purpose of the loan but the structure & security of the debt you will be taking on.
Many banks will want to put a debenture in place over the debt. If funding is organised away from a firm’s primary bank, through CBILS for example – debt can often be funded without providing a debenture or a personal guarantee, which is clearly an option that should be taken advantage of where possible. By spreading the finance across different providers, even for amounts in excess of £1m, considerable sums can be borrowed on a completely unsecured basis.
Interest-only funding is an ideal option for small and medium-sized firms that do not have substantial capital or cash flow. It is generally simple to organise and an interest-only loan can be a flexible, short-term solution to cash flow issues.
A revolving facility works in the same way as a traditional bank overdraft, to provide pre-agreed credit. The funds can be accessed as needed and interest is charged on the sum drawn for the number of days it is used. The flexibility of this option, which has no early repayment penalty or settlement fee, makes it a useful tool for law firms needing help with cash flow or tax and VAT payments or costs such as a delay in receiving payment of invoices.
Loans for acquisitions or business development
For law firms taking the opportunity to make larger changes, a business loan can fund an acquisition or business development projects.
An opportunity exists to rethink future aims and goals. For some, this will mean aiming high, and the right financing can put a sound financial structure in place to build an exceptional business. A wide range of options are available, from modest sums to several million, with flexible repayment arrangements and a choice of terms.
Rethinking the future
In a time of change and turbulence, the law firms who focus on their business model and have a clear future goal stand the best chance of thriving. Finding flexible financing that is available to help when needed is an essential part of the planning process.
At Acorn Business Finance we understand the importance of finding the right funding options for your organisation. We will work with you to provide a bespoke solution to your business needs and ensure that you have the help and support you need.
If we can help you achieve your business goals, ring us on 01242 395 507 or email us at email@example.com.
Author: Stuart Gibson, Acorn Finance