Financial pressure: firms need to seek both equity and debt capital
A third of law firms are under financial pressure and may require refinancing or an injection of capital, new research has found.
Commissioned by leading costs firm Kain Knight, financial health specialist Company Watch said that 898 of the 2,600 firms that file accounts were in trouble.
Smaller law firms are most likely to be vulnerable, with the research confirming that half (463 out of 932) of firms with assets of less than £100,000 are in the Company Watch ‘warning area’.
Additionally, 488 law firms (19% of the sample) have liabilities which are larger than their assets. A third of smaller firms with assets of less than £100,000 fall into this category.
Financial stability is the Solicitors Regulation Authority’s priority at the moment following a string of high-profile failures, and it is in “intensive engagement” with 160 firms due to worries about their positions.
Company Watch reached its conclusions based on each firm’s most recent published accounts as processed through its ‘H-Score’ risk assessment model.
Peter Petyt, Chief Executive Office of Kain Knight, said: “Our research suggests that firms should be proactive in seeking sources of both equity and debt capital to strengthen their balance sheets. This will require careful presentation of the value which often lies hidden in firms, as well as validation of the firm’s operating assets.
“We also expect the consolidation trend we’ve seen in recent years to accelerate, with more law firms looking to merge to take advantage of economies of scale and critical mass.”
He said firms should call in costs specialists to help with a detailed analysis of their work in progress as part of this.
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