Editor's letter: Beyond survival

Oscar Wilde’s famous quip “anyone who lives within their means suffers from a lack of imagination” has apparently been taken to heart by some partners and law firms.

The basics of financial management are to: pay off debts as soon as possible; regularly save and invest cash to fund long-term plans; and keep outgoings within current and expected capital. This may be simplistic, but it’s surprising how many law firms are being put at risk by partner drawings at levels well beyond what they should be.

Partners often expect to be compensated very highly and to maintain (or increase) their monthly drawings, regardless of economic realities or their firms’ long-term requirements. Of course, internal politics sometimes play an important role in determining how far managing partners will accommodate partner demands.

However, with business overdrafts and loans being stretched to finance growth, firms that were previously strongholds in the market are being put at risk of collapse. One need only look at the now-bankrupt Dewey & LeBoeuf to recognise the need for caution when it comes to law firm finances.

The banking crisis which led to the global recession was largely caused by the taking of a series of risks that ultimately compromised the financial stability of several banks and their clients. While law firms may not have quite the same effect on the world by their weakening finances, many that have been compromised will, at the very least, be forced to consider early (and perhaps unwelcome) mergers to stay afloat.

Managing partners often note their difficulties in challenging the status quo and getting partner buy-in for innovative strategies. When it comes to drawings, partners are clearly able to move beyond their conservative nature to push for greater (upward) change.

Perhaps it’s time to leverage partners’ inherent risk aversion to ensure your firm has enough cash in the bank to not just survive but also realise its full potential in the ?coming years.

Until next time,

Manju Manglani, Editor

mmanglani@wilmington.co.uk