Assuming your practice is not financially challenged and the partners have the appetite to develop and expand the business, what are the growth opportunities available to you – and how could such a strategy potentially make you more vulnerable? Viv Williams of Legal Futures Associate 360 Legal Group explores the options
Any form of growth requires funding. Traditionally law firms have funded growth (or in some cases losses) from the high street banks. We have all recognised that this option no longer exists – or does it?
The reality is that if you have a good solid history and a sound business plan, then most of the banks will still provide this badly needed access to capital.
However, the new scheme introduced by the government is virtually worthless for firms with a less than perfect credit rating. The banks have raised their lending criteria – about time too, many would say – but this effectively means that if your firm falls outside the strict credit score criteria, you will simply not be eligible for any funding.
Therefore until the banks change their current lending criteria, no political spin on increased lending to businesses will make the slightest bit of difference.
If you are one of the chosen few, then preparing a solid business plan with realistic cash projections will give you access to capital to enable any expansion plans.
However, if you are not so fortunate, how are you going to expand without investing either your own cash, or someone else’s?
Partners’ investing their own cash into a practice is rare (unless the banks force them to) and with age against many of them, most are looking forward to retirement, not ‘investment’ in the future.
Finding new partners who want to invest in the equity of a law firms is equally as rare, as younger future owners no longer, in most cases, aspire to be an equity partner. They choose to sleep at night and do not want the responsibility and commitment that the position brings.
Becoming a limited liability company is an obvious way of finding new investors: these could be additional partners/directors who will become directors with limited liability without becoming full equity partners.
More likely to be available is a source of funds from an alternative investor, making you into an alternative business structure (ABS) and subject to the compliance required for such models – compliance officers for legal practice and for finance and administration – and facing the financial implications as to what this actually means.
Now you have worked out your strategy of raising the necessary funds to expand your business, what is it you plan to do to expand?
More of the ‘same old, same old’? Still charging existing clients by the hour for services that could be better purchased elsewhere and possibly at more competitive prices with vastly better client service? Or is this your chance to really up your game and become a real driving force providing new and innovative services to your community?
But how do you go about expanding your business in this extremely challenged market, with little access to funds?
Firstly, look at what your competition is doing and then consider doing exactly the opposite of what they do. It is probable that they will not have their clients at the heart of their practice and will not be considering what their clients want or how they want it delivered.
They will probably not be offering innovative bundles of services at fixed prices and they will probably not be innovative in the way they market themselves or be skilled in training their staff in converting leads into new instructions.
This all sounds terribly simple, but if it were, why you haven’t done this before? Didn’t you ever want to expand your practice – or has it been so good for so long that you didn’t have to?
It wasn’t that long ago that marketing and certainly selling were considered words not to be used in the legal profession – I put it to you that unless these become an integral part of your practice, you will never expand your business.
We have to accept that the predictions of 3,000 firms going out of business is now going to happen – a lot depends on a variety of issues, but this figure cannot be doubted due to age profile and access to capital. However, we are seeing an increase in law firm numbers: these are new practices, usually limited companies, and sole practitioners. They are niche practices often working from home with extremely low overheads.
With the growth in ‘legal services’ providers and web-based offerings, the real challenge will be new competitors, including the brands, affinity groups and employee benefit packages.
Why wouldn’t you place your practice in a position to take advantage of failing competitors and an expanding legal services market? This recession will not last forever and there is no doubt that when the bank’s lending policies are relaxed and the market becomes more confident, your expansion will be atmospheric. Therefore any expansion must be controlled.
Expanding too rapidly and without sufficient resources could be the downfall of many businesses. More businesses and hence law firms will fail when coming out of a recession than when going in, so a controlled growth is essential in line with your financial and other resources.
Viewing an alternative business structure with the wrong party can also lead to heartbreak, fallout and decline. Therefore picking your partner will be essential in this age of courtship – get it wrong and it could prove expensive.
Viv Williams is CEO of 360 Legal Group, which specialises in helping law firms successfully manage and market their businesses and buy, sell or merge their practices