A former virtual law firm that has grown into a £2m business in four years has unveiled major expansion plans after being granted alternative business structure (ABS) status.
North Yorkshire firm Newtons has grown from Chris Newton’s “garden shed” in 2009 to a £2m group turnover business and now has plans to bring in non-lawyer professionals to plot the route to further expansion.
After dispensing with a virtual structure due to concerns about supervision and regulation, Newtons has sought an ABS licence in order to “remove barriers to further growth” and bring in a finance director and managing director.
Litigator Mr Newton left a full equity partnership position at Berwin Solicitors in Harrogate to set up his own business working from home, passing on the savings to his clients and aiming to turn over £60,000 a year from a “posh garden shed”.
But as business took off, Mr Newton was having to refer non-litigation work coming in to other firms and decided to recruit some former colleagues and additional senior solicitors on an ‘eat-what-you-kill’ basis.
The firm was structured as a virtual model, with up to nine experienced lawyers under the Newtons brand.
Mr Newton said: “Very quickly we had a full complement of lawyers without the wage bill. We had our first inspection by the SRA in our first year as a new firm and the thought of it was terrifying. But in reality it was a very positive experience.
“I realised that, as profitable a model as it is and as much as I liked it, the virtual model had no long-term future because the question asked by indemnity insurers and the SRA was ‘how do you supervise if you have a virtual model with remote lawyers?’. As we got more and more work in I wasn’t able to say I could supervise it.
“I’m a big fan of the virtual model and look back fondly to those days, but there was a big question mark about supervision which I found difficult to answer. I was concerned this would become a business critical issue and for me the best route was to become more traditional.”
Newtons turned over £300,000 in its first year and Mr Newton decided to buy an out-of-town office in Knaresborough and change the structure of the firm.
It grew to £578,000 in its second year, acquired an office in Ripon and a conveyancing presence in Harrogate via an estate agents.
The third year was £975,000 in fees and the fourth year has just cleared £1.2m.
In July 2012, Mr Newton – and his wife Sarah, a fellow director – took over Hodgsons & Mortimer of Darlington and Richmond and are aligning the systems into a sister firm. Its £650,000 puts the group turnover of the business at around £2m.
“The ABS application was about running our group as a business, not as a law firm as lawyers don’t always make the best managers.
“With ABS in place we plan to get a professional finance director in and, in time, a professional managing director. We have a non-qualified conveyancer who can now be a director.
“ABS removes the barriers that stop us from growing as a business and stop us from bringing in the right people just because they don’t have the right solicitor qualification.”
Mr Newton said expansion into London and the north-east is on the agenda post-ABS, as well as a tranche of new recruits on the immediate horizon.
“As well as helping to get the right people on board, ABS is also about thinking that there are no limits.
“As a group we are just short of £2m turnover with around 50 staff and I can see the path to £3m. In the medium term I want to get to £5m turnover with 20% profitability.”
The group has also set up a business sales agency which purchases and then sells on businesses, directing the legal work into the law firm.
Mr Newton said: “I never thought the business would grow like this. I thought I’d have a posh shed behind the garage doing £60,000 a year.
“Yet in four years we are where we are. On the first day I sat on own in a wicker chair with a cheap Ikea table and a laptop, thinking ‘this is exciting, but what have I done, I can’t remember how to issue a claim form’.
“But the business has a real buzz about it and with further growth comes resilience. If I’d have gone to my bank in 2009 with this business plan they would have laughed me out of the building.”