Posted by Viv Williams, CEO of Legal Futures Associate 360 Legal Group
The news that Irwin Mitchell is considering becoming the first law firm to float has come as no surprise to many of us. Irwin Mitchell has a proven track record in adopting change and has been described as a personal injury powerhouse, carving a path for others to follow.
As traditional practices come under increasing pressure to change their ways or be forced out of business, Irwin Mitchell is aiming to become the leading supplier of commoditised legal products when the Legal Services Act comes into force.
Will this and the arrival of the “brands” change the way many law firms market their services and their practices?
Do you believe that your own brand in your local community has no value?
Are you seen as the trusted advisor but have failed to exploit this relationship with your clients, customers and other professional introducers?
Alternatively, have you advocated your responsibility for the survival of your practice by jumping on the QualitySolicitors bandwagon, building a brand that you do not own?
We have all heard about the estimated 3,000-plus legal practices which are expected to disappear over the next few years, with the impending arrival of the Act and increased competition. I have little doubt that the prediction is correct, particularly as we are still seeing many firms which refuse to face or embrace the substantial changes that are set to arrive in the very near future.
Law firms’ options are unquestionably limited; consolidation in the sector is inevitable and a strategy for survival could be to grow by acquisition or merger. However, this will not change your practice sufficiently unless you adopt a very different approach to packaging and delivering services in a less transactional way.
The alternative is to become a specialised niche player, drastically reducing overheads and delivering a web-based solution, thus joining the large number of new entrants into the sector following redundancy.
We have seen 1,126 new firms being formed in the last 12 months, whilst 484 have simply closed. This is a net gain of 642, the vast majority of which are limited companies.
We are already seeing numerous practices being absorbed by larger firms whilst mergers of medium-sized firms are also, I believe, set to increase, as partners seek to create larger stronger regional practices.
Larger firms have become the predators and many are looking to grow by acquisition. As a contact at one newly merged firm told me: “Merger? We just merged into the background!”
Hence a word of caution. If you are considering buying, selling or merging your own practice, don’t attempt to go it alone and negotiate your own deal.
Although an element of compromise is essential in every negotiation, having a professional on your side will help achieve the best possible outcome – and your survival.
Sadly, lawyers who don’t want to be part of a radically changing profession are unable to simply “shut up shop” because of the provision of run-off cover – the insurance that must continue to run after a law firm ceases to trade.
We are already seeing firms merging on the simple premise that there is no capital value whatsoever in their practices, but their run-off cover can simply be absorbed into the larger firm’s professional indemnity premium. The best that partners can hope for in such cases is to achieve a salaried partner position or a consulting agreement for a limited period.
The other alternative is to grow by stealth, finding innovative ways to both deliver and package your services. Deciding on who your clients actually are is crucial before you decide what types of services you will offer – commoditised or restricted?
Many partners, principals and directors of legal practices are not only juggling the day-to-day challenges of running a business covering everything from financial management to compliance issues to personnel (whilst, in many cases, fee-earning in their own right!), but having to also make time to consider the strategic options for their practices in the short, medium and long term.
Owners of law firms that want to survive the tough years ahead have to adopt innovative thinking in order to take their practices forward, understand and consider what is required to keep their business financially viable and plan to continually build on existing success.
Creating value in a current practice will also make that firm a more attractive merger or acquisition proposition than other less progressive practices, if this becomes the preferred option.
As time progresses and we see a growing number of practices choosing to sell or merge, we will see less value placed on them. Therefore preparing yourself now for a possible opportunity is essential if you are thinking of selling or merging.
It is vitally important that there are specific policies, procedures and controls in place to ensure that the practice is not only a financially viable proposition, but to allow a degree of compatibility with future potential partners or investors.
The management and structure of the business, its finance, personnel, technology, clients, risk management and marketing all need to be considered carefully – and without delay.
For lawyers who envisaged an enjoyable career and then a comfortable retirement, this is no doubt uncomfortable reading. But the current situation will not pass – it will simply become more acute.
Every single law firm needs to take a decision now on where it wants to be in the next five years and how it’s going to get there. Putting this decision off is not a realistic alternative – it simply makes matters worse and reduces the options available.
The good news is that for firms prepared to rise to the fundamental and inevitable challenges ahead, there will be opportunities. The market for legal services in England and Wales is an astonishing £26 billion and this is likely to increase in the foreseeable future.
Will opportunity be knocking on your door? Or will that door be closed for business?
360 Legal Group LLP specialises in helping law firms with their marketing, management and strategy and in the merger and acquisition of legal practices