Peter Noyce – Legal sector specialist
The legal sector like many others is facing considerable challenges as a result of the coronavirus pandemic. However, instead of only impacting one department, demand for all commercial and individual legal services is likely to be impacted in some way, so how will senior partners respond?
Cash is king, even more so now
There have been some encouraging noises from the Government and the Chancellor in recent days and the new £350bn business support package that have been announced should help to alleviate some of the pressure on businesses of all sizes during the crisis. Of course, some of this support will be available to law firms.
While Government-backed loans, grants, help with Statutory Sick Pay and more time to pay HMRC are all welcome of course, there are some steps that law firms can take immediately to ease pressure off cash flow. Taking action now could help to protect employees and preserve business continuity.
Cash management has never been so important
As is often the case in challenging or uncertain situations, decision makers should start by considering any low-hanging fruit when looking to improve their organisation’s cash management. It makes sense to ensure the firm’s bank accounts have sufficient liquidity, with overdraft facilities in place where needed. Debt management should also be a primary focus, as well as ensuring that any work in progress is crystallised into fees, where there is opportunity to do so. It is important to stay close to clients and suppliers at this time, as they are likely to be experiencing challenges of their own and it may be necessary to ease pressure in some areas or find ways to share the financial burden.
The old adage that cash is king has never been more true. A review of the cash-flow projections should be reviewed weekly, if not daily, looking ahead three months into the future on a rolling basis. Helping to identify any near-term peaks and troughs, at the same time keeping sight of any upcoming tax payments and other regular payments that may be due just past the three month period. Assuming staff have been provided with remote working advice and client communications are established, this focus on cash management should be top of the agenda for partner meetings to ensure agile decision making.
It’s time to stress test your finances
Every firm should undertake cash-flow forecasting and stress test their finances as part of their business response to the coronavirus pandemic. This should involve considering the sensitivity of activity levels across all teams feeding into the firm’s overall plan. The capacity of the firm should also be kept under review and communication with staff is vital to ensure they understand the approach the firm is taking and how that may affect them going forward depending on the how long the crisis lasts. It is important to seek advice in areas such as cash-flow forecasting and people management if you lack specialist skills in these areas, particularly as it is important to stay focused on client services and strive to maintain business as usual as far as possible.
Staying in touch and sticking to processes
Remote working for Lawyers should be easy enough as it is largely the same as being at your desk. However, this will create some challenges when it comes to collaboration within teams, the firm and with clients. Many transactions and projects move forward much quicker with face-to-face meetings but video conference technology may soon be the new norm.
Other operational challenges include ensuring adherence to internal risk and take-on policies, where fee earners are remote working. This is not the time for people to start dabbling in new practice areas simply because collaboration with colleagues has become a bit more tricky – normal rules apply! Also beware coronavirus cyberattacks, which can take many guises, Fraudsters are out there already, thinking up new ways of accessing your clients’ monies, so it is important to beware.
When remote working runs alongside the use of timesheets, these should be completed on a daily basis. As the ability to track the level of activity around the firm can provide a crucial key performance indicator; giving you advance warning of any cash-flow troughs in the pipeline and informing your cash-flow projections.
Agile decision making is key
Although reducing staff days and hours is never a pleasant step, it may be a necessity in the weeks and months ahead. Keep staff informed on how the crisis is impacting the business – both financially and operationally as this is absolutely critical. Difficult decisions may need to be taken and it is obviously going to be much easier to do this if employees appreciate the reasons why it has become necessary.
Finance managers and partners would be foolish not to consider the support package made available by the Government fully. As well as taking advantage of extended time to pay arrangements with HMRC, any appropriate reductions in payments on account that should be made at the end of July especially could be very attractive. In the short term, items such as professional indemnity premiums could be financed, assuming this hasn’t been done before, to ease pressure on cash flow over the next couple of months.
Helping business and HMRC in the present Coronavirus Crisis
The flow of cash is also important
As the above states, cash is king as never before but so is flow of cash, that is proper payment of debts on time but this is going to cease completely whilst businesses try and protect their business and to an extent their employees. Businesses will prioritise their own survival, basically Darwinism.
Interruption loan scheme is not enough
The government have tried to assist but the Coronavirus Business Interruption Loan Scheme is not enough, this is gearing companies up at a time when that is the last thing they need from a sanity point of view and from a repayment point of view, even with the initial repayment holiday.
The government needs to immediately put Commercial (business) loans on the same 3 month payment holiday as personal mortgages.
Tax liabilities need to be deferred
Additionally the government needs to immediately defer all tax liabilities until August, at least at this stage. Then grant an automatic 12 month Time To Pay Arrangement with HMRC. The reason it should be until August is because that assists the self-employed who are presently looking at second payments on accounts payments due on 31 July 2020 and those funds at that time will be required for other more pressing business survival matters,
This also helps HMRC as easier for HMRC to manage rather than multiple calls from businesses and individuals dealing with individual arrangements. Means less strain on business & HMRC administration time, especially with staff off. Leaves the business staff remaining to concentrate on supply chain & doing business generally and will help people’s general mental health, which is going to be more and more important over the coming weeks.
As always, it is important to seek advice before taking action take to ease pressure on cash-flow or adjust to new working arrangements. Most firms have access to trusted advisers and now is the time to make use of them.