LPM

FEATURES
APRIL 2016
"Developing a robust
business plan goes hand
in hand with getting a
full understanding of the
main profitability drivers
for the firm. It makes
sense to upgrade the
firm’s IT infrastructure."
second round of redundancies. “This
evoked an amazing response from our
staff, who came forward with offers of job
sharing and taking reduced salaries, which
resulted in fewer redundancies. They could
not have worked harder, giving up
weekends to do work we could not afford
to pay for. Virtually all of the staff with us
then are still employed.”
Alongside ensuring that a firm is flexible
and adaptable, valuing staff is Beck’s top
turnaround tip. “The staff are the lifeblood
of the firm, and its biggest asset. I am
often dumbfounded at the poor treatment
some firms feel they can dish out to their
staff.”
CASH IS ALWAYS KING
When a firm finds itself with financial
woes, says Robert Banner, chair of the
Law Society’s law management section
committee, an urgent focus on cash flow
planning is key.
“Developing a robust business plan goes
hand in hand with getting a full
understanding of the main profitable
drivers for the firm. It makes sense to
upgrade the firm’s IT infrastructure and
review all administrative processes to
drive down costs while improving service.
A review of staffing arrangements is
inevitable. The firm must find the best fit
in terms of the number and level of staff
employed. These steps will help put a firm
in a better place to defend its existing
position against low-cost entrants,
maintain its existing client base, and
survive at the expense of less efficient
local competitors.”
Facing facts is vital when financial
problems strike, says Peter McKenna,
partner and business development
manager at Newcastle's TLW Solicitors.
“Turnaround options will depend on the
TURNAROUND CASE STUDY
BACK FROM THE BRINK
Financial disaster is something just around the corner for more firms
than you might think. This true but anonymised example shows how
firms must change when things go wrong
In Spring 2013, Northern law firm ABC was a 25-partner firm
(50/50 equity/salaried partners) with falling revenue and
profitability, and under severe pressure from its bank as covenants
were being breached and the overdraft was exceeded monthly.
Insurance premiums had increased significantly due to historical
problems in the commercial property department, and following
a standard SRA visit to discuss risk, a full financial viability review
had been launched.
Charles Metherell, a member of the Institute for Turnaround’s
legal services panel, was instructed in a turnaround capacity
through the bank's business support function and with the
support of the firm's relationship manager.
“It was quite clear from the outset that the structure of the
firm needed to be addressed as a matter of urgency and that
steps had to be taken to reduce overheads (people and
payments out) and improve financial performance.”
Over two years, initially involving weekly then bi-weekly
involvement on Metherell's part, the following steps were taken:
• Creation of new management board and replacement of
former managing partner
• Creation of new operations board and heads of department
• Micro-management of lawyer teams to ensure effective
financial hygiene. This involved putting the onus on the new
heads of department to be accountable for the agreed revenue
stream from each group, and managing the recording of time,
billing and cash collection in conjunction with a restructured
finance team
• Working on a culture change following a redundancy exercise.
Redundancies were made in unprofitable departments and
teams, a major strategic exercise having been undertaken to
establish how the firm's business model would operate in the
future
• The creation of a CRM programme and appointment of BD
support
• Creating a user-friendly appraisal process for partners, fee
earners and support staff, and undertaking partner appraisals to
ensure consistency of targets and manage underperformance
• Creation of a revised and workable reward structure in the
partnership, moving away from pure lockstep, and creating a
bonus system
• Managing the relationship with the bank leading to re-banking,
renegotiation of overdraft, and funding terms such that the firm
is now operating on a reduced overdraft and in accordance with
controlled cash flow
• Managing the firm's relationship with the SRA leading to a
financial viability exercise being concluded and no further
reviews proposed
• Managing the relationship with the PII broker and insurer,
leading to reduced premium and putting in place new risk
processes
• Closure of one of the firm's offices
• Bolt-on of another firm
• Metherell also took on an NED role at quarterly board meetings
after the turnaround process.
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LEGAL PRACTICE MANAGEMENT