Small firms need to be structured to meet the demands of a rapidly changing market for legal services, writes John Durkan. If they fail to get the basics right, then the future could be extremely bleak




For the smaller law firm, things do not look good. Whether it is legal aid reform or change thanks to Clementi, we face difficult times.



While some may wave the white flag, the majority will have to battle on – and that means adapting. As the practice director of a firm in the regions that is very much high street and traditionally reliant on legal aid funding, I have had to develop a strategy to meet the difficulties of a changing market.



Many firms do not want to recognise that we are, first and foremost, businesses and have to tailor what we offer to what the market wants.



Commitment from partners

While developing this strategy, I have had full backing from the partners. This is critical. How else are you going to drive through changes which are often not immediately attractive?



Partners need to work on the business, not in the business. I have insisted that some partners reduce their chargeable hours and work on the business. The benefits of doing this, especially in larger firms, massively outweigh the lost fee-earning capacity. This will give partners more time to develop business strategy across the year, monitor risk, and ensure key objectives are achieved.



You must have unified management. There are so many pressures today that you simply cannot spend energy and time on internal bickering.



Your market

Look at the market you operate in, and set your business up and plan accordingly. Remember: business first, law firm second. Some partners still need to accept this basic concept. In the case of Switalski’s, as a regional practice with 90% reliance on publicly funded work, we have had to analyse closely the way that market operates.



The legal aid market is increasingly about volume, or scale. It is now nearly impossible to make legal aid financially viable unless your practice is of a significant size. The exception is a niche firm doing relatively well remunerated very high- cost crime work or care work where the advocacy is in-house.



This means being big – the government has formally accepted the Carter view that providers ought to be larger. We have ensured that we have grown and we continue to do this.



The benefits of size are, however, negated if firms are poorly geared. Profit per equity partner is a function of gearing, and if you work in a low- margin business, such as legal aid, you must ensure that your firm is highly geared.



IT investment

There undoubtedly needs to be significant investment in IT, otherwise many of the efficient working practices required to make low-margin work viable will not be possible.



This includes remote working. What is the sense in a fee-earner coming into the office, which may be far from their home, if their client is on their doorstep? Investment in digital dictation, outsourcing of secretarial work and meeting fee-earners’ IT needs, makes this possible.



Stakeholder relationships

In addition to clients and employees, key stakeholders include banks and – in our case – the Legal Services Commission. It is very important to have an excellent relationship with all of them.



A good relationship with the bank manager is a must. Avoid giving them any nasty surprises and keep them updated of major changes. Make sure they understand your business, what makes it tick, and when money will be tight and so on. Your bank manager is there to help, but they will only help if you give them adequate warning.



Build relationships with other law firms too. This is perhaps most likely with a similar firm at some geographical distance or with a firm of very different profile where there is no competition. You can cross-refer, share solutions to problems and consider ‘bulk buying’ of IT or the like.



Marketing strategy

This is often overlooked. If you are looking to grow your business, this will be impossible without a clear marketing strategy. This is not about throwing huge sums at adverts and the like, but looking at your market and deciding what will work. This could involve raising profile by winning awards, and partners liaising with the local press.



Monitoring time

All practices must have procedures to monitor chargeable and non-chargeable time closely. The system should be simple, easy to understand, and checks should be performed regularly.



Non-chargeable time can be valuable but too much could be evidence of lack of work, inefficient practice, administrative issues, or junior fee-earners not charging for work that is claimable.



Risk management

It is critical that your practice has all key deeds, contracts and systems in place. It is remarkable that so many partnerships do not have a partnership deed. The same point applies to lease agreements. Contracts of employment should be in place for all staff. Another regular omission is a disaster plan. When things go wrong, the lack of such documents or processes will make a bad situation much worse.



An outside view 

Outside consultants are important, as they will independently appraise how you are doing. The right consultant will critically assess your plan, add value and ideas, monitor progress and tell you if your plans are pie in the sky.



Conclusion

Business and law firm management is about getting as many of the basics right as possible. If you do that, you will have a successful business.



Do not limit your horizons, set sights high and try to achieve them. If you do not achieve them, appraise why not and reset the targets.



We all operate in a market undergoing huge change. But there are also significant opportunities to be taken by firms that set themselves up to meet future demands.



John Durkan is practice director at West Yorkshire-based Switalski’s