55% of leading law firms have insufficient cash and thousands of high street firms may go bust

A report in the Law Society Gazette yesterday says that a review of leading law firms’ accounts shows that years of enhanced partner distributions and lean approaches to cash management have left firms vulnerable to financial shock.

The study, published by Augusta Ventures, a litigation funder, shows that out of 40 LLPs studied, 55% had insufficient cash on their balance sheets to cover one month’s operating expenses, and 38% would not be able to meet one month’s salary bills.

The review was based on the publicly available financial accounts of the top 40 UK LLP law firms by revenue that report on a consolidated basis.

Firms that are under-capitalised will find it all the harder to deal with the impact of Covid-19, which is inflicting a massive financial shock to all sectors of the economy.

Author of the study, Andrew O’Connor, concludes: ‘The rate of cash burn experienced by law firms during this period will place significant strain on balance sheets.’

Last week a survey of nearly 8,000 legal practices by the Law Society suggested that thousands of high street firms could shut within six months because of financial pressures as a result of the crisis.

Cash flow pressures and lower fee income have put more than half of all the legal practices in England and Wales at risk.

“The shock to the legal services sector has been sudden and severe,’ commented Law Society president Simon Davis.

“There are widespread concerns over liquidity as firms face a dramatic plunge in income with work falling away.

“Although a firm may be open for business, this does not mean it is business as usual.

“Residential property transactions have ground to a halt.

“Reduction in court hearings has massively impacted on the amount of work available – while social distancing and the lack of face-to-face meetings is causing difficulty delivering in other areas, such as the execution of wills.”

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13 Comments

  1. Peter Ambrose (The Partnership)

    “years of enhanced partner distributions and lean approaches to cash management have left firms vulnerable”

    Or to put it in my words;

    “Greedy law firm owners putting their employee’s jobs at risk”.

    Change is clearly coming but the people that will pay the price are those working round the clock for bosses accepting low fees sufficient to pay for their Range Rover leases but not to build cash reserves…

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    1. Property Pundit

      accepting low fees sufficient to pay for their Range Rover leases but not to build cash reserves…

       

      Also applies to a lot of estate agents.

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      1. Beano200062

        Not sure I get the Range Rover Analogy. As I understand it I can lease one starting from around £400 p/m which is roughly the amount invoiced for an hour and half’s work by these legal types. Pretty sure most lawyers are sitting safe in the knowledge that they can ride out this period of lower income levels with their own funds, which may have to come from the stash accrued in the good times…..

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  2. AgencyInsider

    If the partners suck money out of the business in the good times, they should be prepared to put money into the business in the bad times.

    Or maybe they just spaffed it all on Range Rovers etc? Surely not?

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    1. whatdoiknow58

      Very true. But you assume they actually have reserves of cash/liquid assets in the first place. Too many businesses were technically insolvent prior to the lockdown so no real suprise that many now are struggling. Unfortunately we live in a materialistic society which to some involves competing with your contemporaries to have the biggest house, the flashiest car or a couple of buy to lets until wham this happens.
      As we say ‘ up North ‘ fur coat and no knickers.

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      1. PeeBee

        “As we say ‘ up North ‘ fur coat and no knickers.”

        Not TOO far ‘oop North’ then, whatdoiknow58 – it’s nee knickers from Harrogate to the Carter Bar – and nae knickers from there to polar bear land!

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        1. whatdoiknow58

          The cavalry turn back at Barnsley then your on your own….

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          1. PeeBee

            BARNSLEY?  NORTH??
             
            Ahhh… a Suvvern softee after all! ;o)

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      2. htsnom79

        Anywhere north of Birmingham it’s all cloth caps and ferrets…..

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        1. PeeBee

          No ferrets here, ntsnom79 – the polar bears eat the little bu99ers for breakfast…
           
          …especially the ones wearing cloth caps ;o)

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  3. PeeBee

    Firms that rely on conveyancing to keep them open may well struggle like cats in a mangle when ‘normality’ returns.

    But those law firms that chase ambulances… I reckon they’ll be busier than a busy thing trying to pin their costly tails on anything that looks remotely like a donkey.

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    1. PeeBee

      No apologies whatsoever to the ambulance chaser that doesn’t like the above comment.

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  4. mark@solicitorswhocare.co.uk

    Here we go again

    I have just read an article about solicitors and agents collaborating in having a legal pack or similar available at marketing stage rather than post sale only to see that its a return to type with agents rising to any old bait ( the original article is in fact acutely flawed) and putting the boot in to the legal profession

     

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