Take stock of what you might expect in the near term

Published on Sunday 15 November 2009 20:23

VERY few, if any, managing partners are offering definitive views on what 2010, and indeed 2011, will look like for law firms in the UK generally, and their own firms in particular, given the prevailing uncertainty.

"Challenging" and "fragile" will continue to be recurring themes, posing the obvious question: how do you plan for such uncertainty?

A firm's profitability is directly influenced by its ability to generate fee income, control its costs and instil sound and strictly adhered-to financial management practices.

The start of the process has to be a balanced and robust assessment of the near-term position.

Challenges managing partners must address in near-term financial planning include:

&#149 Is there clarity and accountability on where revenues will come from and when?

&#149 Have headcount issues at all levels been fully dealt with or is there overhang going into the next financial year?

&#149 Is the plan sufficiently aggressive on support costs?

&#149 Will planned savings be delivered? That is, are all partners being consistent and rigorous on centrally agreed savings?

&#149 Demanding honesty in the level of work required.

&#149 Alleviating funding pressures by avoiding being or becoming lenders to their clients.

Next, consider scenarios that may or may not arise, and how the firm is positioned to respond. Have actions taken on partner numbers and fee earners reflected medium-term expectations? What about contingency plans for further deterioration in performance – what are the agreed triggers for action? Where are the most significant risks within client relationships, and just how strong are they? Does the firm understand the impact of the economic and financial environment on its key relationships?

It is also vital to understand what your competitors are doing on pricing and service, remembering that they will be courting your clients. Partners should consider whether or not to adopt a policy on pricing.

In buoyant markets businesses tend to prosper, but in a downturn difficult conditions expose those with fundamentally weak strategic as well as financial positions. The reshaping of the economy after the recession will be profound.

Access to finance is likely to remain limited and as businesses and consumers scale back debt there will be an impact on demand. The government will face huge fiscal pressures following the interventions of the past 18 months and that will come with a tightening regulatory environment and reshaped markets.

The final stage, therefore, is to consider the firm's medium-term position, both in sustaining its existence and in capitalising on opportunities.

This raises questions around how the partnership should look, and how this compares with the current situation.

Partners should consider where growth is likely to come from, and whether the firm has the right team in place.

With low or no growth through 2010-11, the firm must have absolute confidence in the talent of its fee earners.

Consider also the expectations of the firm's clients – are other firms emerging with better client propositions?

What does good performance look like in a downturn? How you capture this and communicate it is important. If you plan "down" then don't be surprised to achieve a "down" result.

Tomorrow's winning firms will be those whose leaders have the vision and conviction to capitalise on the current economic and financial turbulence. How firms act over the next 24 months could drive their performance for the next decade.

&#149 Mike McGregor is an associate partner and legal specialist at Deloitte in Scotland.