A new picture of health

For each firm in financial difficulty, there are hundreds that are taking decisive action

Bill as soon as the work is done, don't be embarrassed about chasing for prompt payment, and don't - whatever happens - take your drawings unless your firm has cash in the bank. These are basic principles of law firm management which apparently too many partners still think only apply to others, according to the latest report by accountants Baker Tilly on the financial health of the legal services sector, 'The importance of being financially stable - Protecting your firm'.

Ever since financial stability became the Solicitors Regulation Authority's favourite mantra this summer, these principles have suddenly become the crib sheet for finance directors, lenders and indemnity insurers. Not to mention the need for watertight processes to protect law firms from fraud, the risk of taking on bad clients, and poor judgement that can make you decide to settle a case early to get the revenue instead of litigating for a higher amount. The Baker Tilly findings and the accompanying recommendations are perhaps not surprising, but they add to the growing awareness that, much as we would all like to believe that the economy is recovering, most firms on the high street are still feeling the pain.

There are several reasons why FinStab has suddenly taken centre stage. The ongoing recession, which is making clients cautious, is undoubtedly the main cause. Pressure from new entrants is usually cited as another, but seeing the troubles at Cooperative Legal Services, the slow take-off of the likes of Rocket Lawyer, and the delays with LegalZoom's UK launch, it's not the most convincing explanation yet. The only notable initiatives inspired by the Legal Services Act seemed to have clustered around personal injury, an area affected by a combination of extreme changes involving both the arrival of integrated alternative business structures and the complete overhaul of the costs regime.

Then there is the rise in fixed-price services. Here again, however, there are a few pioneers but little evidence otherwise that fixed pricing has made inroads into the sector to the extent that this is a major threat to traditional law firms and their financial stability. And let's not forget that many have been offering fixed-price services since well before the recession. The only difference now is that it is used beyond classic areas such as conveyancing or will writing.

Financial stability, really, is an issue cranked up by the Solicitors Regulation Authority. Rightly so perhaps, but as it happens, the SRA is also the stakeholder that has the most to lose if law firms start going belly up on a large scale. Banks and indemnity insurers would be next in line, having to mop up hundreds of thousands of pounds in losses or compensation. But for each firm in difficulty, there are hundreds that are taking decisive action and building on solid business models based around their local communities.

Take Fisher Jones Greenwood, which last week decided to shun the national appeal of QualitySolicitors to focus on its regional market, or Chadwick Lawrence, which sold its personal injury book to Slater and Gordon and will use the cash to fund its growth strategy around new products in traditional areas such as conveyancing and employment. It doesn't mean we should ignore the very real risk that financial instability poses for the sector, but it's also good to see independent firms lead the way.

Jean-Yves Gilg is editor of Solicitors Journal

jean-yves.gilg@solicitorsjournal.co.uk