Viv Williams's blogs

Compliance – catalyst for consolidation?
Viv Williams
Wednesday, 20 February 2013

Will 2013 prove to be a happy new year for ALL small and medium-sized practices? We are now into a new era of outcomes-focused regulation (OFR) and the vast majority of firms have their compliance officers for legal practice (COLPs), and finance and administration (COFAs) in place, with the exception of a few hundred. The latter have just sent an open invitation for a visit by the Solicitors Regulation Authority in the early part of 2013.

There has to be consolidation within the legal sector: it is envisaged that somewhere between 2,000 to 3,000 firms will end up merging, consolidating or simply going out of business in the next few years. We have seen the first sizable merger in 2013 – West Country firms Harrison Clark and Rickerbys creating a £20m-plus turnover practice. This seems a perfectly natural fit with two well-run and well-managed practices joining forces to drive down costs and overheads, and the cost of compliance.

Is this the sign of things to come? How many firms can honestly say they are well run, well managed and profitable in the current economic climate? Have many of the firms who have been having ‘chats’ about the future now realise that the only way to pay for and survive this new regime is by getting bigger to share the potential cost of compliance under the new OFR regime?

We have seen a number of online and consultancy offerings springing up in the past few months and we doubtlessly will see many more but have we really evaluated what the true cost of compliance under the new regime will mean for too many smaller firms? Those firms who have brought themselves to the attention of the SRA by not complying with the appointment of a COLP and COFA are likely to receive an early visit. Any other avoidable breaches could well result in firms being targeted by the SRA and hung out to dry.

The financial services industry has experienced outcomes-focused regulation for the past decade and it seems that OFR needs a few prime examples to make the remainder sit up and listen. If we look back to the early days of OFR compliance in financial services then we see very heavy fines we handed out to those businesses that failed to comply. Is this the stage we are now at with the legal profession? How many firms have paid lip service to the new regime and will they only take these fundamental changes seriously when examples are made?

Specialist consultancy does not come cheaply and the online offerings, although excellent, still require some hand-holding; hence what will be the true cost of complying with OFR? It is reported that the cost of compliance, done properly, can approach a figure around 20% of a firm’s turnover – this includes COLP and COFA training time, compliance officers and the preparation of all necessary documentation. Many firms are not making a margin of 20% before drawings so will this mean the cost of complying with OFR could well push many firms over the edge?

The predicted number of mergers and consolidation within the profession has not happened to date but everyone is allegedly talking to everyone else about merging. With a few notable exceptions, firms have continued to muddle through with their banks’ support but what happens if the cost of compliance escalates to this sort of level?

Many firms simply cannot afford any additional costs and it may well become attractive for firms to merge into larger practices who have the resources to provide compliance support to their firms. We have seen a number of mid-size and smaller practices acknowledging that the cost of compliance could well make their business unsustainable. So what are the options open to them?

Spreading the cost of compliance in larger practices could prove an attractive option to some, in other words larger practices could well offer their compliance service to smaller firms; merging or being acquired may be another but care should be taken in both the way your firm is presented and to whom you offer your practice.

It is imperative that if this is the stark reality of the future of your firm then please get help; do not jump at the first offer that comes along. There is a way of organising a successful conclusion to merging your practice – doing it yourself should not be on the agenda. Compliance is not just reviewing a few files and considering what your options are. It should be an integral part of your on-going strategy for running your practice

And compliance could well be the catalyst to spark the consolidation in the profession that has been anticipated and predicted for the past few years.

Viv Williams is chief executive of 360 Legal Group, which provides a dedicated business consultancy service to UK lawyers

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Finding the skills to manage change
Viv Williams
Tuesday, 23 October 2012

We have all read the articles and comments regarding the inability of many law firms to manage their own practice, let alone deal with the changes currently sweeping through the profession. Many partners/owners have never been trained in management skills and are finding it difficult to evolve a strategy for their future.

A surprising number of law firms are embracing change by using the skills of a non-executive partner/director to help them formulate strategy and implement change within their organisation.

Recognising your own strengths and weaknesses will result in a realisation that many partners do not have the necessary skills to develop a change management strategy within their practices. We have seen a steady growth in non-lawyer chief executive positions within larger and mid-sized practices when external management skills can make a significant difference. These so-called management specialists come from a variety of backgrounds and will command a salary commensurate with their experience – in other words you get what you pay for! The impact of a CEO can carry the costs of a partner but in many cases make a significant improvement in the bottom line, therefore justifying their costs.

However, many firms are reluctant to make the commitment in investing in such a position and either tries to do it themselves or employing a halfway solution in a practice manager who has little or no authority or responsibility. If partners do not accept that change is inevitable then they are not ready for a CEO – a number have tried it and said it didn’t work for us. Was that because once the CEO told the partners some unpalatable news, such as a reduction in drawings in line with performance, that the CEO role suddenly becomes redundant?

The use of a non-executive is both a cost-effective and extremely productive alternative; if resources are tight, utilising the experience, knowledge and skills of a non-executive can be the difference in thriving rather than just surviving. Having someone prepared to challenge the partners and ensure the strategic plan is implemented will have a dramatic impact for those practices that have the fundamental desire to embrace change.

It could well be that the current partnership is under some pressure seeing a reduction in turnover and profit per equity partner, yet fundamentally they wish to remain as a partnership providing world-class client service at a premium rate to genuine clients. It has been argued that continually reviewing the client base and deliberately removing the bottom 10% of their clients will make the firm more profitable. I have only used the word client in the above scenario and it is essential that we do not confuse the client with the customer. Clients value your service and will pay a premium for your time whereas customers are buying on price – you simply cannot make money by providing client-led services to customers.

Solicitors who enjoy practising law have never been trained in management skills and with the current sweeping changes through the profession it is more important than ever for ideas and management skills can be brought into the practice at an affordable cost.

Alternative business structures, referral fee bans and the changes to legal aid are just some of the outside influences that are technically out of your control but will have a huge impact on the future of your firm if not dealt with correctly. If the firm has dealt with the current recession properly then they will have cut their costs, made the necessary although painful redundancies, and reduced drawings accordingly. The luxury of having an external chief executive, probably a non-lawyer to run the practice, appeals to many practitioners but the cost of employing a full-time CEO is prohibitive in the current difficult economic environment.

Hence the growth of the non-executive director/partner within mid-sized and even smaller law firms; a non-executive will allow you to still run your organisation but will give you invaluable advice and guidance in all aspects of business and managing change. The opportunity facing law firms far outweighs the downside on condition you are running your practice as a business. Bringing those business skills into your practice does not have to be expensive but should make an incredible difference. The strategy may well be to bring in a CEO role in a few years’ time and many non-executives are seen as an interim arrangement towards that goal.

Whether you have a strategy for the future or are looking for guidance, join the ranks of the ever-growing trend of legal practices that are embracing the opportunities and utilising the skills of a non-executive to grow and enhance their practice.

Viv Williams is chief executive of 360 Legal Group, which provides a dedicated business consultancy service to UK lawyers

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How much is your practice worth?
Viv Williams
Tuesday, 1 May 2012

As the legal market expands - as all markets do when deregulation is applied - who will be benefiting from this growth?

Predictions are that the numbers of solicitors will decline - but, as the legal sector grows, why should this be? Fundamentally, we have too many solicitors’ practices serving a growing but changing market.

At a basic level we have 9,000 firms with five partners or less with the average age of equity owners fast approaching sixty years.

Most have no succession planning or exit strategies and work with ageing clients whom have not been communicated with for years - so it’s little surprise that new brands are looking to enter this space which offers such opportunity! For far too long many law firms have been providing the same below par services, charged for by the hour, at a standard that is unacceptable, although most will not accept this as reality.

These law firms have failed to move with the times. In numerous secret-shopper exercises we have seen damning reports of a failure to offer even the most basic client care, a failure to return phone calls and more fundamentally a complete lack of understanding of how important it is to convert potential business into new instructions.

Unfortunately the new brands entering the market will focus on exceptional client care and are experts at turning a sales lead into a new instruction.

Let’s just look at the Tesco marketing model - a club card that recognises what we purchase and comes up with alternatives at a competitive price; a money-back offer and a client care service that is second to none. As yet Tesco have declined to show any interest in legal services but if it did...

Already at the table is QualitySolicitors, who may not be everyone’s choice as a national brand, but they are at least focusing on these fundamental issues.

Using private equity investment wisely QS is working to recruit high-quality people and raising the standard of the member firms by focusing on the basic client expectations. Work generation and converting those leads into business is also part of their strategy.

This alone will put their member firms streets ahead of many of their local competitors and will create a perceived value in independent firm members as part of a national brand.

How do you think other national brands will approach your market and win over your clients? The answer is of course, by identifying the clients and customers they intend to serve and providing products and services at a price those customers can afford, whilst providing exceptional client care.

As these brands enter the UK market space what impact will this have on independent law firm valuations? In reality there is no value in goodwill anymore and if the legal brokers would only stop raising expectations by overvaluing these practices just for the valuation fee, we might see a gradual awakening to this fact in the real world.

Keeping work in progress and debtors and expecting one-third of turnover as a valuation is NOT realistic in this environment.

Having completed some 60 mergers to date we have failed to realise hardly any value in the practices involved. Our success has been in ensuring the firms, generally distressed, have been able to repay their bank borrowings and that the existing partners minimise their personal liability. Goodwill has simply not been on the agenda.

The delayed implementation of the Jackson report until April 2013 will have a further devastating effect on personal injury practices as those firms that have relied on paying referral fees for their work will find their business model completely unsustainable. With the exception of valuing work in progress and debtors, what value would you place on their business model beyond April 2013?

On a positive note there are buyers out there and if we finally accept that consolidation is inevitable ensuring you present your firm in the best positive light will enhance any value left in your practice.

If you do not have the appetite or the resources to remain independent and the age of the partners is against you, then deciding what your future should be sooner, rather than later, is the most sensible option.

If we accept we have such large numbers that need to merge/be acquired then we also have to accept that this is very much a buyer’s market. The expression that beauty is in the eye of the beholder is very appropriate. There will be a series of trigger points that will put pressure on firms to act. To do nothing and expect this to all go away could be the death knell for your practice.

Act now before it’s too late.

Viv Williams is chief executive of 360 Legal Group and specialises in law firm mergers and valuations.

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2012 - the year of insolvency?
Viv Williams
Friday, 2 March 2012

Now we have the Legal Services Act on the statute books and the first 100 alternative business structures (ABSs) applied for, what does this mean for the 8,000 or so firms who are facing a challenging future?

This year many partners in legal firms will have a lot of thinking to do as they face up to what will probably be the greatest change seen in their working lifetimes. Most firms have already taken decisive action regarding the control of their overheads but the new entrants into the legal market will be marketing machines and will erode the 'client' base relationship unless the local solicitor brand actually delivers what they are looking for.

The legal profession has largely been insulated from the cold commercial winds that have blown through the banking, accounting and other service sectors. Many years ago all firms in these sectors enjoyed relationships with clients who valued their skills and paid appropriately for them. However, since the early 1990s we have seen clients become customers, expecting and demanding quality service delivered on time. Their main driver now is price. A customer shops around, a client does not.

The banks reacted to internet access and the changing demands of customers, hence a much reduced branch network. Accountants and others have to quote for work in advance and fixed-fee pricing has become the norm. Many solicitors though still insist on giving top quality client service to customers (rather than clients) which is becoming increasingly uneconomic.

Around 75% of legal firms have four or fewer partners and are typically high street firms. In many cases they do not have sophisticated practice management (and have not needed this in the past) and therefore will find it harder than their larger rivals to cope with the new commercial world that is coming.

To add further momentum, the banks are starting to realise the potentially dangerous effect all the changes are going to have on the legal market. Historically they have been very keen to lend to partnerships. Personal guarantees from the partners, low failure rates and the income from large client account credit balances that practices maintain encouraged banks to lend a high proportion of turnover at a perceived low risk. Numerous smaller insolvencies and, of course, Halliwells, have dented the confidence of the banks in their lending policy to solicitors.

Now the banks, whilst still keen to lend to the right firms, realise that the changing market requires them to be more sophisticated in their lending decisions. Many have specialist teams who will be benchmarking firms against each other to help identify the winners, who they will back, but more importantly to try to spot the so-called losers who they will not want to support.

Those firms reliant on litigation, personal injury and clinical negligence will find it even more difficult to gain access to capital. A number of specialist lenders in the sector have pulled out and the banks are certainly not prepared to step in and support volume personal injury and clinical negligence work. Although these departments have been considered hugely profitable in the past, they are also the biggest drain on financial resources. The Jackson reforms could place many of these practices under severe financial pressure and who can blame the lenders for pulling out of this uncertain market?

All of the major banks are concerned by this lack of capital and their exposure to PI firms is being closely scrutinised. This could see numerous firms needing to sell their books with very few, if any, buyers of this type of business. Certainly, there will be no cash up-front on any such transactions - does this mean a steep rise in law firm insolvency? One after-the-event provider is clearly concerned and suggested that all 250 firms they supplied could well need to merge or be taken over in due course as they run out of cash.

Insolvency practitioners who specialise in legal practices tell me there is a steep rise in the demands for their services since the beginning of 2012.

However, the banks tell us they are open for business and if only 1,000 firms need to merge, be acquired or close in the next few years then up to £1.2bn of revenue will be on the move. This is calculated by assuming a typical three partner firm has an annual turnover of £1.2m. Banks’ lending to support this revenue would typically be in the order of £700m, based on lock-up in work in progress and debtors of seven months (longer if personal injury is involved).

With this level of revenue involved it is easy to see the potential attraction for the consolidators. This in turn will place pressures on the middle tier firms, who will find smaller firms seeking to do company commercial and similar work in competition to them. It is not only financial pressures that need to be addressed, as increased compliance has become a hot topic within the profession. Outcome-focused regulation and the new compliance officer for legal practice and compliance officer for finance and administration requirements will place additional challenges on firms without sufficient resource.

The well run, financially aware firms and the strong niche players will be able to gain from these changes. There will be many opportunities to merge which, if properly planned, will benefit all parties but beware of the quick defensive merger that everyone regrets as soon as the deal is signed.

The solicitors practice is not an endangered species but it must evolve and adapt to the new commercial world as other service providers have had to. Sadly, 2012 could well be the year of insolvency for numerous law firms.

10 top tips for better practice management:

  • Keep a tight control on cash - remember 'Cash is King'
  • Review your corporate structure for both ABS opportunity and succession planning
  • Understand the working capital cycle of the firm
  • Have a clear defined strategy and ensure you have the buy in from your partners
  • Look after your staff as they will always be the source of your competitive advantage
  • Make sure your investments in IT systems and processes are effective
  • Is your marketing strategy up to date and effective?
  • Are your partners aligned in their objectives and motivated to implement the firm’s strategic plan?
  • Don’t forget the risk management issues. One badly done job will be remembered, no matter how many good ones you do
  • Watch your competitors. Understand who is doing well and find out why

Viv Williams is chief executive of 360 Legal Group and specialises in law firm management, structure and merger

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The rainmaker’s bible
Viv Williams
Friday, 16 December 2011

In drought conditions the term ‘rainmaking’ was commonly used by the American Indians who used magical powers to bring the rain to nourish the crops and feed the people - not unlike the current drought conditions that legal firms are experiencing in new instructions. Today a rainmaker is a person who brings revenue into a legal practice with your clients’ and customers’ cash being the rain.

In the highly competitive world of legal services it is essential for law firms to adapt a rainmaking training programme for all staff who are in direct communication with clients and potential customers. These do not have to be fee earners - in fact, recognising different skills in your teams will be essential to develop your business. In the more successful practices every employee must somehow be involved in the identifying, attracting, obtaining and retaining clients and customers.

One of the key questions we should ask is: 'Why should this customer or client do business with our practice?' The common mistake is that the answer fits the law firm’s agenda rather than the customer’s or client’s. Instead the customer experience should be exceptional.

Training front-line staff to answer that essential question by calculating what economic benefits your service gives your customer and by calculating the consequences of not purchasing your service is an essential rainmaking tool. The retailer John Lewis provides a classic example of exceptional customer service and demonstrates increased profitability even in a recession.

We can then adopt the first commandment: 'Treat each customer or client as you would treat yourself.' Do you like being overcharged, badly served, placed on endless hold, not have your telephone calls returned, ignored and not thanked? A good client is demanding - they expect more from you and will pay a premium for exceptional service. Continuing the theme, how much money is spent on marketing your firm, yet with little emphasis placed on converting those expensive enquiries into actual instructions? There is a skill and there are techniques that will demonstrate to your staff the importance and value of every enquiry and will teach appreciation of the importance in converting these into new business.

If you are a commercial practice and are targeting businesses remember that 90% of your meetings will be lost before you meet your prospect! Because lawyers often do not research their prospect and their industry before they meet, ‘plan every meeting’ is the second commandment in the rainmaker’s bible.

The more research you do about the business and its industry the greater the the impression of knowledge and that you genuinely want to work with this business. A pilot never misses a single checkpoint on their pre-flight check - likewise we should be well prepared for every meeting, without exception. Creating a value proposition for commercial clients is an essential if you are to win their business. For example you might utilise insurance products and become in-house counsel for your clients so they are encouraged to telephone you without charge. For the right client this could include unlimited meetings.

A legal expenses policy could be included in your proposition and, on condition you have researched your prospect, you should know whether they will buy from you because of fear or gain.

Your customers and clients will always have concerns or issues that need to be satisfied before they will purchase your services. These concerns are often price, affordability, your delivery and a myriad of other issues. Concerns are not always voiced by the prospect but must be dealt with before they will purchase from you. For example, if your prospect was to tell you that your time estimate for the production of their new employment contracts is too long, you might respond by asking when the client would like the employment contracts delivered and confirm that they would like to proceed providing that you can deliver the contracts by that date.

The third commandment therefore is 'to unearth objections whether they are spoken or not'. By asking the question, 'is there anything else that concerns you?', issues can be resolved before asking for the instruction. The importance of client referral is often ignored and many law firms avoid the term 'sales' and forget to 'cross-sell' their services. Rainmaking is essentially selling and thinking about the next opportunity that will set your firm apart from the competition.

Finding ways of asking for referrals is an essential tool in any rainmaker’s armoury - by bundling legal services you can always be looking for the next opportunity with your client or customer. The fourth commandment has to be to ‘build a referral machine within your practice’ - asking clients to recommend you to others is an essential part of building your practice.

The fifth commandment has to be 'to treat each person you meet as a potential client’. Your next instruction could come from unexpected places so remind staff never to demonstrate frustration with reception staff or other non-decision makers - they could well influence future buying decisions.

Ignoring body language can result in opportunities simply evaporating. If a potential client leans forward to show interest in what you are saying it demonstrates a buying signal. These come in a variety of ways without this interest being communicated other than by body language - therefore commandment six has to be ‘learn to understand buying signals’.

Most of us have used baby sitters at some stage in our lives: they get a job, do it and get paid. It is an example we can all learn from - whatever the issues with the children you always tell the parents on their return that there were no problems. This is the seventh commandment in rainmaking - ‘do not burden your client with any problems you incurred in doing the job’ - they don’t care! You deliver your completed work on time and within the agreed cost estimate and they will repeatedly instruct you with more work and may even recommend you to others.

The use of the business card is often ignored as a rainmaking tool but should be part of every rainmaker’s toolkit. Your business card should be functional and easy to read and not have every service you offer printed on it. Two successful examples of this are the young aspiring partner who distributed more cards than his colleagues by saying 'here’s my card, if you or your company require any professional advice that will benefit your business then give me a call and I will ensure our best people work for you' and the criminal lawyer who gave her card to everyone she met! Her card went to taxi drivers, pub landlords and their staff, waiters or anyone she came in contact with, as she said: 'Here’s my card, if you ever need help, or anyone you know needs help, please telephone me. I will help you.'

The eighth commandment of rainmaking therefore is to ‘ensure you always carry and distribute your practical business card at every opportunity.’ The transfer fees paid for top football strikers is staggering but why do football clubs spend such sums on one individual? Yes, they have talent but it’s what they do that counts - 99 out of 100 shots on goal may not go in but they keep trying. Similarly the rainmaker has to keep taking those shots and not let in negative thoughts such as 'I’ll never get to meet with that managing director; we are too small for that company to work with us.'

If you do not try then you will never score that goal; therefore the ninth commandment has to be to ‘be persistent’ - if you do not keep trying to win new business then you have failed before you start. The tenth and final commandment has to be ‘to place a value on why your prospect should buy legal services from you’. Trying to compete on price should not be part of your objectives - the brands will win every time therefore you have to differentiate your service from your competition.

Your clients and customers will buy from you if they understand the value of your service and will pay a premium if you can demonstrate true added value.

Here are 10 simple things you can do today to win new business:

1. Write a handwritten note to a prospective client
2. Select and forward an article of interest, possibly by email
3. Ask a satisfied client for referrals
4. Send a thank you gift to someone who has sent you a referral
5. Give one of your business cards to a person who has influence
6. Write a letter to a magazine that your clients read
7. Add 10 new prospects to your database
8. Leave a compelling voice mail for a prospect
9. Make an appointment to see a prospective client
10. Telephone a client you haven’t spoke to for two years

Viv Williams, chief executive of 360 Legal Group

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Retreating partners
Viv Williams
Tuesday, 6 December 2011

As many of us know from experience, partners in solicitors’ practices often cannot agree on even writing the most basic strategic plan; yet at this time of extreme change it is more important than ever that law firms have a clear vision as to what the future holds for them.

Law firms have traditionally grown by succession and have never needed to consider why they are in practice in a traditional partnership, what services they should offer and how they charge for these services. It’s been passed on over centuries.

However, many younger partners in law firms are now questioning why they deliver certain services and whether these services are profitable. More importantly, they are questioning their very existence in this new legal landscape. So is there a future for local solicitors to thrive in either a geographical or niche practice?

The answer to that question is definitely yes, but only if the practice changes the traditional (badly managed, poor cash flow etc.) image and approach. So how do partnerships realise their potential and agree, amongst themselves, a strategy for the future?

A growing number of law firms are turning to partner retreats to help focus partners on the fundamental and important issues for the practice, rather than the “urgent” ones that crop up every day.

Partnerships that are not in full agreement as to their key issues can see real benefit from taking time away from their day-to-day fee earning activity to gain the advantage of a formal meeting away from the office. By using an external facilitator partners will often open their emotions to what they really feel about the key issues within their practice. It is essential that all firms have a shared strategic vision and all partners must agree to that vision.

How many partnerships continue to operate with one or more dysfunctional partner who has a different agenda to the remaining partners?

This lack of a common vision with one single dysfunctional partner (or more) creates the poor performing practices we are still seeing today, many of which will be poorly managed and have profitability and cash flow issues. It is these practices that will be among the thousands of law firms that are predicated not to be in business within the next few years.

Partners can often find it difficult to share their views with each other whether there is dissatisfaction within the partnership due to lack of profitability or more fundamental issues such as whether the firm should be providing publicly-funded work.

Another key issue for dissatisfaction is firm’s exit strategies. With the average age of an equity partner in a law firm now being 60 years, a growing number of partners are realising that there are no younger potential partners willing to become equity partners in their firm and this has become a real concern. The desired outcome of the retreat should always be to establish what the correct outcome for the practice will be as a going concern, rather than for the individual partners.

For example, if a practice has a high street office which is owned by the senior partners yet the work produced is better suited to an office away from the high street (i.e. personal injury) all the partners would have to agree to this fundamental move away from the high street. What is in the best interests of the firm has to take priority over the interests of the senior partner. An outside facilitator can force the partners to vote on this type of fundamental issue.

Another area prompting a need for an agreed strategy is practice finance. The current seismic shift that the profession is experiencing has been accelerated partially by the Legal Services Act but more importantly by the banks, who are taking a more pragmatic view on law firm debt. In fact bank lending has flatlined over the past two years with firms having to work within existing overdraft facilities.

Unsecured bank borrowings are estimated to be at one billion pounds. Sadly, to enable them to remain within their current facilities some law firms have utilised other monies to pay wages and other bills. The Legal Services Commission has been pursuing firms who have been overpaid and the HMRC has taken a tougher stance on chasing non-payment. We have seen more statutory demands served in the past month or so than during the past twelve.

Law firms no longer have time to deal with partners that do not see the key issues and challenges that face them. The process is usually identified by a managing partner or other partners who recognise that they have a problem within their practice. Inevitably the issues facing the firm will be causing frustration within the partnership and concern over the direction the firm is taking.

It is essential that the retreat has an outside facilitator who is aware of all the issues. Partners will open up when challenged and an outcome for the benefit of the firm can generally be achieved.

It is always advisable to hold a retreat away from the office, thus avoiding the obvious distractions. It will take one or possibly two days. Some firms hold their retreat over the weekend to avoid the loss of fee income. Other firms will take a day away from the office to complete their retreat. Spring and autumn seem to be the most popular times but obviously avoiding key holiday times or when work flow is at its most demanding time.

The facilitator will usually write the agenda, with the assistance of the partner/partners who have organised the retreat.

Often the day is split into two sessions where relevant team members (accounts, practice manager, heads of departments etc.) attend the morning session but only the equity partners stay for the remainder of the day. If tough decisions have to be made then that has to be the responsibility of those that own the practice.

All aspects of the practice would usually be discussed and in various ways; however there are usually one or two burning issues that become paramount and without changing these fundamental problems, the practice will not develop or even potentially survive.

A written report of the day should be provided by the facilitator to the partners and this forms the basis of a strategic plan. The plan will have action points, some of which may require external assistance. This can then converted into a “growth plan” where consultants assist in the implementation of change. As with any industry or profession there has to be sustained mentoring to ensure the items agreed are carried through.

Each retreat is very different and outcomes will vary but examples of outcomes that can be achieved include:

  • Deciding to seek a merger partner
  • Deciding to sell the practice
  • Deciding to acquire other practices and develop a strategy for growth by acquisition
  • Successful closure of high street premises and opening of open plan offices suitable for non-high street work
  • Splitting up of partnerships, where partners responsible for publicly funded work may leave to join other publicly funded partners
  • Agreement of an exit strategy for dysfunctional partner(s)
  • Partner agreement to drop some unprofitable legal services - some partners agree to re-train
  • Partnership agreeing that they need help and assistance to develop the practice
  • Partners agreeing to appoint a non-lawyer to effectively run the practice (this is the facility for non-lawyers to become partners of a law firm under the Legal Services Act and will become more important when Legal Disciplinary Practices (LDPs) come to fruition)
  • Agreement to change the partnership to either LLP status or Limited Company status. This, in turn, greatly assists with succession planning

In a recent example a ten-partner practice with a turnover of £3.5m agreed, following a day’s retreat, to become incorporated and have five directors, the youngest female partner becoming managing director of the newly formed business. Now that’s a result!

As more practices begin to realise they will need to change the way they deliver services and become more business-orientated partner retreats are increasingly and correctly being used as serious strategy sessions to ensure the firm is addressing the fundamental issues facing it and the legal profession rather than being a partner benefit or “jolly”.

The implementation process behind change management will assist those firms who wish to embrace change and realise their true objectives.

Until now it has generally been the mid to larger firms that have taken time to stand back from the daily routine and fee earning to “retreat”. However, those firms who want to survive - and thrive - might wish to heed the advice of Michael Gerber who in his book The Emyth encourages all businesses to spend time working on the business - and not in it.

Viv Williams is CEO of 360 Legal Group and has successfully run hundreds of partner retreats as part of specialising in helping law firms to manage change.

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What would a law firm run by Darwin do?
Viv Williams
Friday, 11 November 2011

If Charles Darwin were alive today, what would he say about the world of Solicitors? As a reminder, Darwin wrote: 'In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.'

The exciting news that private equity funding has reached the high street with an investment in QualitySolicitors is the beginning of a world of opportunity for those law firms who are prepared to evolve and develop. The investment in QualitySolicitors is likely to spark interest from other private equity funders looking for a foothold in the legal sector. Many of these have been sitting on the fence waiting for someone to jump - well now they have!

A deregulated market will always grow. The legal services offering could effectively double in the next five years to 4% of the gross domestic product (GDP) - a staggering £50bn. We are aware of the declared numbers of “brands” entering the market in the next few years and are also aware of the various affinity schemes gearing up to offer legal services to their customer base. With Rocket Lawyer and Legal Zoom, the US document delivery businesses, entering the UK legal services market, the competition will be fierce.

The big question is who will be the winners in this new competitive environment - the new entrants or well run regional and niche solicitors practices? A national brand such as QualitySolicitors was an obvious starting point but what does this mean for other regional solicitor practices?

Even the SRA is recommending law firms of all sizes to consider alternative business structures. Speaking at a recent Conveyancing Association meeting, Samantha Barrus, director for corporate regulation, stated: 'The Legal Services Act presents an opportunity for the high street. The reforms will widen the service offerings and refocus the business.'

If we therefore follow Darwinian theory, those firms that are well managed and are run as a business will have the opportunity to compete. A key feature in any law firm with aspirations of success is the need to 'raise their game' and apply business logic to running their practice.

The first hurdle has to be corporate structure. With 25% of legal practices now trading as limited companies, this has two definitive advantages. Firstly it will encourage younger owners to become involved without the burden of equity partnership - limited liability is an attractive option. Secondly it prepares the law firm for potential outside investment with the directors drawing salaries and leaving profits in the business to pay dividends to shareholders.

In one recent example a specialist two-partner family law firm were sitting on nearly £600,000 in their capital account and over £13,000 in their bank account with no idea how to get the cash out of the business. By converting the partnership into a limited company and turning the capital account into a loan account the two directors could draw down their loan account over the next five years from profits and at the same time encourage younger future owners to become directors and prepare these new owners for the succession plan now in place.

Having a clear vision and strategy to achieve your personal goals is essential and in many instances law firms do not possess the necessary skill sets to implement such change in their practice. This should give some hope to numerous solicitors’ practices that should not just throw their arms up in despair but engage in some visionary thinking about their future. In his book The E Myth, Michael Gerber refers to people working on their business and not in their business.

How many partners continue to concentrate on their billing targets which, although important, should only be part of their focus? We have no more time to play at being ostriches continuing to bury our heads in the sand. Those firms who are now embracing these sweeping changes will be the winners in this battle for survival.

It’s still not too late, but engaging in this change management process is becoming essential if firms are to survive. The Australian market deregulated solicitors some ten years ago and despite sweeping changes with new brand entrants at the time, most of these have gone. We are left with one large well-known brand - Slater & Gordon - which is recognised by a staggering 80% of the Australian market (this was following stock market flotation, national television advertising and the rest).

The remainder, however, are proper businesses and are run as such with external management, financial directors and business development specialists. They had to raise their game to survive and only the strong have made it.

The future

So what does the future hold for solicitors in the UK? The solicitor brand is grossly undervalued and the suppliers of legal services play on that fact. As we know, as a non-solicitor supplier of legal services, they do not need the same skills and qualifications, they are not regulated by the SRA and do not have to comply with the outcome-focused regulation. Moreover they do not pay anywhere near the professional indemnity fees that a solicitor does.

We know it’s not a level playing field but solicitors have to rise above this and look inwardly at each practice’s unique selling points (USPs) - most practices actually have one or more. The skill is recognising what they are - and focusing the practice in these key areas.

However, the new Code of Conduct with its “outcomes-focused regulation” (OFR) is presenting a different challenge. One-in-ten firms is now closing because they cannot afford to comply with the new regulations. Overall 9% of firms were planning to close or merge as a result of compliance costs - 11% of small firms and 5% of medium and large practices - as highlighted in a recent Law Society survey.

There will be huge consolidation in the legal sector in the coming years and mergers are happening on a regular basis. In fact, I predict we will see this escalate during 2012 to record levels as more firms realise, in the cold light of day, that they cannot survive alone.

However, with the correct guidance and an appetite to retain your independence, I am convinced that there is a massive opportunity in this fast growing sector to develop your brand and not only be a survivor but emerge as a real winner. If your local competition is not seizing this opportunity then it is essential that you do, if you want to be part of this exciting future.

Viv Williams is Chief Executive of 360 Legal Group

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Decisive actions are needed in changing times
Viv Williams
Friday, 16 September 2011

Despite the delay in the regulation to license alternative business structures and the full implementation of the Legal Services Act, it is imperative that law firms decide now what direction their firm is planning to take.

We can categorise the profession simply into three areas; the well-managed strong national and regional firms, the firms who are seriously financially challenged and the vast majority - probably as much as 75 per cent of the remainder who do not have a clear direction and plan.

These latter firms are not under severe financial pressure but have no succession or exit strategies for the existing partners.

Do they continue to practise for several years? Do they try to sell up, but at what value and to whom? The new dawn of legal services that is still on the horizon offers considerable opportunities to those prepared to plan their future. Unquestionably there will be challenges along the way but the poorly marketed brand of solicitor will still have a significant role to play in the new era.

The world of legal services is muddied by the new entrants offering a plethora of services: 'divorce from £69'; 'cheap as chips conveyancing' and online services offered by various affinity groups.

However, the brand of solicitor should always have a place in the community if some strategic thinking about its future takes place.

Many lawyers become so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a business review or preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it a practice is much more likely to fail. A sound plan should:

  • Become a framework for decisions
  • Provide a basis for more detailed thinking and planning
  • Explain the business to others in order to inform, motivate and involve
  • Assist benchmarking and performance monitoring
  • Stimulate change and become a building block for the next plan

A strategic plan should not be confused with a business plan. A strategic plan is designed to be a short working document whereas a business plan is usually a much more substantial and detailed document. A strategic plan can provide the foundation and framework for a business.

The starting point must be to determine if there is an existing vision, mission, objectives and strategies. Then judge these against actual performance along the following lines:

  • Is there a current vision and is this being achieved?
  • How has the practice's mission and objectives changed over the past three years? Why have the changes occurred or why have no changes occurred? Identify primary reasons and categorise them as either internal or external.
  • Describe the actual strategies followed over the past few years in respect of products/services, operations, finance, marketing, I.T, management etc.
  • Critically examine each strategy statement by reference to activities and actions in key functional areas covering such matters as:
    • How has the practice been managed?
    • How has the practice been funded?
    • How has the practice sought to increase turnover?
    • How have the overheads increased?
    • How have redundancies affected the business?

Take each of the above and try to reference this against actual performance. Continue to ask why and establish the reasons for differences between the actual and desired performance.

A practice rarely succeeds or fails for minor or trivial reasons. The causes are usually substantial and are often self-evident, at least to an outsider. For example, the practice was completely over-borrowed; management was weak; badly implemented mergers had taken place; client care and cross selling of services were ignored or exiting former partners expected capital account repayments in an unreasonable way.

It should be possible in the course of a few pages to set down the main elements of the firm’s vision, mission, values, objectives, goals, strategies, strengths, weaknesses, opportunities and threats etc. The compilation of a short report along these lines is likely to prove much more difficult than a lengthy dissertation which mixes up details and principles and confuses the broad picture.

Law firms have traditionally grown by succession and have never needed to consider why they are in practise and what services they should offer. Partners are now questioning why they deliver certain services and whether these services are profitable.

In many cases partners cannot agree to even writing the most basic strategic plan so a partner retreat should be considered which will focus them on the important rather than the urgent. It is well worth taking time away from their day-to-day fee-earning activity to gain the advantages of a formal meeting away from the office.

By using an outside facilitator partners will open their emotions to what they really feel about the key issues within their practice. It is essential that all firms have a shared strategic vision and all the partners must agree to that vision.

So many partnerships continue to operate with one or more dysfunctional partner who has a different agenda to the remaining partners! This lack of a common vision with a dysfunctional partner (or more) creates the poor performing practices we see today - many of which will be poorly managed and have profitability and cash-flow issues.

The old adage is still true: 'failing to plan is planning to fail'. The signs that the need for decisive action is being taken seriously however are encouraging; 360 Legal Group has conducted well over 100 strategic planning days in the past twelve months.

Viv Williams is chief executive of 360 Legal Group, which provides a dedicated business consultancy service to UK lawyers and which has some 700 law firms as members

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The funding solution
Viv Williams
Thursday, 9 June 2011

Sound financial management has become a key issue for law firms as for the first time banks are closely scrutinising lending to these legal companies and implementing new credit policies.

It is worth looking at how law firms can effectively demonstrate their financial acumen in a bid to secure bank funding.

In order to demonstrate to a bank that your firm can meet its credit policy criteria there are a few basic principles to consider.

First, it is vital that the partners of the legal practice understand how the business stands financially.

At least one of the partners (with or without the assistance of a practice or financial manager) has to know and understand how the business is performing financially on a day-to-day basis so the business can respond effectively and quickly.

That individual should also have the knowledge and be given the time and support to undertake what is effectively one of the most important roles within the firm.

Secondly, there are a number of questions and considerations of which partners should take note in order to prepare adequate information for their lenders.

For example, do the partners know if the firm is profitable?

What is the current position before and after drawings - and do they recognise the difference between profit and cash in the bank? How does this compare to the previous three years’ trading?

If there has been a decline or an upturn, what is the reason?

Is each department and fee-earner profitable and has a profitability analysis been undertaken for each department and fee-earner within the firm?

We have reached a significant crossroads and law firms have to decide strategically what type of firm they will be in the future.

If the decision is to offer regulated legal services clients will pay a premium for the attention and knowledge your firm will demonstrate.

However, if you choose to deliver commoditised services then your choice is either to adapt a software/web-based solution or employ less qualified (and more affordable) staff to deliver these fixed price services.

Can the firm's existing practice management system produce the information which the bank may require?

Does it have the facility to undertake a year-on-year comparison without having to refer to year end printouts?

Who within the firm actually knows what information can be extracted from the system - and how?

It is essential that you give yourself sufficient time to undertake a realistic review of your budgets and targets and identify if you have the 'right people in the right seats'.

To obtain buy-in from your staff it is essential to deliver your budgets and costs-delivered targets to all personnel in time for the new financial year.

Once you have ascertained that your WIP (work in progress) is billable then it is essential that you turn those bills into cash.

For many firms, the credit control function has not been considered a priority in the past.

Here are some key questions to answer when establishing a credit control policy:

  • Who is responsible for and undertakes day-to-day management of the firm's credit control process?
  • Do you have a written credit control policy that has been given to every member of your staff?
  • Is your credit control process automated and linked to your accounts software?
  • What is the split between 30, 60, 90 and 120+ day debtors/disbursements?
  • How much has been written off so far this year and have any further potential bad debts been identified? Who has authority to write off bills and have the reasons been recorded for HMRC purposes?

It is equally important to manage your fellow partners’ expectations as well as that of the bank and this can be done by producing regular management accounts in-house on a monthly basis.

Understand the information in the reports and if your accountants prepare them, ensure they are discussed openly with all partners.

Do your management accounts include a work in progress valuation?

If not, this will distort the profit/loss figure.

It is recommended that you review actual versus budget figures at least quarterly and record any required amendments.

Looking to the future

Despite the stringent lending criteria currently being applied, law firms will long be an attractive sector for some of the banks.

For example, LloydsTSB is going to great lengths to improve its service with specialist units being established to cater specifically for the legal profession which have an understanding of the problems being encountered.

In addition, many bank managers now have a Lexcel qualification and a better understanding of the regulatory and compliance issues facing solicitors.

Layering the practice's finances is an option which has largely been ignored by a legal profession used to the luxury of increasing overdrafts on demand.

This situation is rapidly changing and specialist lenders such as Key Business Finance, now part of Wesleyan, can assist in the layering of these finance options.

Although some key disbursement funding players have disappeared there will be new entrants into the sector and it is likely that more law firms will consider employing alternative funding rather than their overdraft.

Whichever the chosen lending route, having excellent management information available will not only help to manage partners' expectations but also those of your bank/lender and help towards a long and successful relationship going forward.

Viv Williams is Chief Executive of 360 Legal Group

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Firms and the funding challenge
Viv Williams
Tuesday, 26 April 2011

Obtaining funding has never been an issue for law firms – until the arrival of the credit crunch.

Yet many legal practices seem oblivious to the changing attitudes and requirements of the banks.

Every law firm planning to survive the recession should be focused on sound financial management.

The days of a law firm requesting an increase in their overdraft facility on the back of a telephone call to their bank manager have come to an abrupt end.

The credit crunch and the subsequent fallout from a number of significant insolvencies in the legal sector have left the banks nervous about funding legal practices – and who can blame them?

Yet even now I am often asked: ‘Why is the bank asking me for information about my management accounts and cash flow forecasts?’

Surely this shows a naivety in the minds of some solicitors who cannot understand why the relationship between the banks and the legal sector has changed?

In reality it’s time to accept that the banks’ traditional ‘rose-coloured spectacles’ view of the sector has all but disappeared.

We are seeing no evidence of increased bank lending and, with mortgage approvals hitting an all time low in January, there are no signs of recovery for the sector.

Indeed there is significant concern that as 2011 progresses more and more practices will become financially challenged, culminating with the professional indemnity renewal on 1 October.

Already there are more than 300 practices in the assigned risk pool and this figure could well double by the autumn. It is rumored that the Solicitors Regulation Authority is seriously concerned by the amount of potential interventions the next twelve months could bring and its ability to cope.

The banks are now actively seeking out potential risks and subsequent bad debts within their lending books, leading to a change in direction and practice around their credit policies.

And, for the first time ever, this includes credit policies for the legal profession.

As a result of this closer scrutiny, banks are identifying a lack of financial acumen and control in a significant number of legal practices.

This is particularly true of traditional high street SME partnership practices that do not - or cannot afford to - employ a practice or financial manager and where financial responsibility is allocated to one of the partners.

Unfortunately, during their extensive training solicitors are not taught how to run a business and deal with finances.

Often the partner dealing with finance does so because no one else wanted the role.

Thus, the financial control of legal practices, has often been managed using a secondary, after-hours, ‘fit it in where we can’ approach.

However to support and lend funds to law firms, banks increasingly want reassurance that practices are being run in a proper business-like fashion and are effective and profitable organisations (ironic perhaps in view of the recent government bank bail outs).

Banks will now look carefully at how a practice is run, by whom and with what support.

For example, does the firm have a qualified legal cashier, practice manager or accountant to enable them to determine the effectiveness of the business?

They will also look more closely at factors that may impact on the future trading potential of a legal practice.

These may include legal aid contracts, costs information and costs estimates (an area where many firms are very vulnerable to action by a client if information has not been given or updated), interim billing, monies on account, staff appraisals, potential negligence claims, complaints procedures, IT back-up facilities, results of Solicitors' Accounts Rules (SAR) audits, anti-money laundering regulations etc.

All of these, plus how the firm is managed on a day-to-day basis, are likely to be taken into account in deciding whether or not a practice is a viable proposition.

My day-to-day experiences working with law firms have demonstrated that many do not have basic, established, sensible working management principles in place.

An often-encountered problem is that there are no agreed income and expenditure budgets or costs-delivered targets and therefore partners cannot produce effective management information which tells them if their firm is profitable or not.

I have recently seen a case where a bank repeatedly requested monthly management information from a law firm detailing actual versus budget profit and loss analysis.

After many months, the lender unsurprisingly lost patience and the partners have had to provide full security to cover the overdraft facility, in order for the bank to continue its support.

Increasingly banks want far more financial information on a regular basis in the form of annual budgets, cash flow forecasts, projected profit and loss and balance sheets, aged debtors and creditors, details of HP, lease and other loans, levels of unbilled and unpaid disbursements, the split of work (which helps to assess if the firm is too reliant on one area of work or one particular client), and updated partner asset and liability profiles.

And, in some cases, the banks are now trying to secure previously unsecured borrowing.

Whilst we all agree good practice and financial management is a good idea, is it really happening within your firm?

And if so, is it being reviewed and updated regularly? It is an absolute necessity for any business, not just legal practices, to have sound financial processes, procedures and systems in place.

Work in progress (WIP) must be turned into bills, and those bills (debtors) must be collectable. A firm’s ‘lock-up’ (the amalgam of your WIP and debtors) should be targeted to be no more than 120 days.

Whilst I accept this is not possible in all litigation casework it should be a key objective for legal practices.

When we do see an economic recovery and your firm starts to increase the level of work taken on, it will be essential that you manage your bank’s expectations and inform them of your need for additional cash resources.

Work taken on will result in an increase in your wage bill, a build-up in your WIP and eventually a build-up of debtors but when will you actually see the cash?

A recommended and simple discipline is to create a 13-week cash flow forecast and keep this up to date. It will help to manage your bank’s expectations and demonstrate you are in control of your finances.

It is essential to remember that more businesses are likely to fail through overtrading without financial resources as we come out of this recession, than we have seen going into or during it.

Viv Williams is Chief Executive of 360 Legal Group

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