Crisis? What crisis?

Many firms are ?still facing the challenges of succession planning, with many unsure of how to deal with this fundamental issue. ?The regulator, banks, and professional indemnity insurers are well aware of this pending crisis but do not know what to do about it, other than their normal options.

Intervention, business support, and withdrawal of ?cover or increasing premiums are all interlinked in some way, yet there is no support or assistance available for those firms that will eventually become part of this crisis. ?We do not currently have any ‘joined up thinking’ in this area.

Many firms that are still operating in the arenas of crime, personal injury, probate, and conveyancing are facing the challenges of new entrants and ever-increasing competition, which can have only one effect on margins.

I have been a constant ?thorn in the side of firms that are not planning for their future. Some 75 per cent of the practices I see are facing the crisis of exit and succession, with older partners having different agendas to the remainder of the firm. 

Many of these are having a good year, with profit per equity partner much higher than in previous years. I visited two firms last week of similar sizes, with a turnover of around £10m, in different parts of the country. Both firms have been complacent but successful. 

However, there is still much ?to be done to improve both performance and profitability for longevity, and so both have decided to embark on a journey of change. 

Interestingly, both firms are traditional partnerships. There are still huge opportunities in incorporation, and not purely for tax reasons – in fact, quite the contrary. 

Succession planning and ?an exit strategy should be paramount in their thinking; possible investment from an alternative business structure or from private equity should not be ignored. Yet these two firms are currently highly profitable, so why should they change what they are doing? 

The simple answer is staring all firms in the face: what they have is not sustainable. Many progressive, younger partners recognise this and are keen to embrace change.

Plan and prepare

Fundamentally, this is a crisis facing the profession. Many firms are only just holding their heads above water; low interest rates, increased conveyancing work, and new instructions have given them false hope for their future.

I am expecting a crisis to develop in the next year or so, with many firms not addressing the exit and succession issue. 

So, what is the solution to this pending crisis?

First, you have to be prepared to listen to a solution, however unpalatable it may seem. Continuing in the same old way will eventually bring you into conflict with one of the three parties mentioned in the first paragraph. 

Surely it is far wiser to plan and prepare to avoid such potential conflict?

Some firms are recognising the confidential help they can provide to other practices and are working with strategic planning consultants, turnaround specialists, and change management specialists to assist in this area of pending crisis.

A panel of law firms and specialist consultants are coming together to offer a solution under the banner of legal and financial consultants. The panel currently includes Ashfords, covering England ?and Wales, and Morisons, in Scotland.

This service is not designed for those firms already in crisis with their banks, insurers, or regulator – although there is help that could be given even in these circumstances – but for those firms that are stressed but not distressed yet.

Planning now to buy your ?own business in a management buyout is not new but is usually applied as a last resort to avoid interventions or failure, yet there are ways to embrace ?these options much earlier.

Recognising there are some lines of work that will never be profitable for firms would be a starting point. Leaving behind unprofitable departments and building a business for the future could well be the solution to avoiding such a crisis.

For example, how many ?firms would consider having their will banks cleansed and/or marketed? Will updates, lasting powers of attorney, and trusts and probate over a 20-year period for a percentage of return could well be profitable for many partners, who are currently sitting on large will banks that are making no return whatsoever.

‘Crisis? What crisis?’ many ?of you will say. Yet, as inevitable as the seasons changing, this crisis is coming, and faster than you think. SJ

Viv Williams is CEO of 360 Legal Group @360legal www.360legalgroup.co.uk