Getting your house in order – reshaping your future
July 06, 2014
Law firm numbers are falling for the first time in 25 years and this pace will increase unless you develop a strategy. The existing “business models” are being challenged like never before by the impact of new competition, web-based technology and perhaps as many as half of all law firms will not have a viable future unless they radically change direction.
Re-shaping a firm involves stopping doing certain things, improving and changing other things while starting to do new things. There needs to be clarity on which client groups are to be serviced, in what business areas and how. Focus is normally required and there should almost be an equal commitment to what the firm will cease doing or not attempt to do. Such analysis and decision making is difficult for nearly all law firms – particularly those with multiple offices, departments and areas of specialism. It involves challenging history, culture, powerful personalities and values.
It may be that as part of this process a firm fragments. This is not necessarily a bad outcome but must be managed as part of a controlled process. There may be no natural synergies between certain groups of clients and services. A key question must be: “if you were starting out today to build a law firm, would it look like your firm?”
A growing trend amongst law firms which face limited funding is to reduce, or even exit from altogether, those lines of business which have a high lock up profile. This is normally Personal Injury/Clinical Negligence but can involve similar areas of longer tail litigation or even property and other work. The key here is to affect a reduction in the long term cost base of the firm (hopefully tied in with leases and property expenses) in a manner which releases cash from working capital and can be used to reduce debt. Profitability can be a secondary issue if cash flow and funding issues are acute.
Undertaking such a “downsizing” without planning – and in response to immediate business pressures – is fraught with difficulty. However, as a component of a managed, credible, coherent and clearly communicated strategy, the chances of success are significantly enhanced.
A reshaped firm has a much better chance of a merger or of being acquired on good terms than one which lacks focus and the will to change. Merging or being acquired without having done this work simply leads to someone else having control over the process and an effective dilution of terms – purchase price, remuneration and influence – and usually residual liabilities.
Not getting your house in order will be a recipe for a disastrous future.
Viv Williams is CEO of 360 Legal Group