How can law firms weather through the second wave of Covid-19?

Mike Stevenson, managing director at Iceberg, says there are likely to be sustained cashflow challenges as firms adapt to the new normal.

There’s no doubt that the Covid-19 pandemic has shaken the legal sector and created a seismic shift across the industry. With the impact of a second wave now hitting the industry, it’s difficult to predict what the future holds. There are likely to be sustained cashflow challenges as firms adapt to the ‘new normal’, with those navigating a second lockdown and restrictions impacting business levels. Over the next few weeks, careful managing of overheads will be needed in order to ensure a smooth transition.

In the immediate future, many firms are facing steep increases in expenses as the full cost of staff returning from furlough coincides for many with the need to renew professional indemnity insurance (PII), with premiums costing between 15% and 20% more than last year. Looking slightly further ahead to early 2021, many firms are also facing deferred partners tax payments and VAT payments, now due in January and March respectively, although VAT repayments can now be spread.

On top of this flurry of costs, the industry will likely face the usual slump of activity that’s characteristic of the festive period, where overheads remain high but earned fees dip. With the country in an economic recession, there’s also no clear picture as to how long lockdown restrictions will last across many UK regions, or any easy way to predict the impact this will have on business levels.

There are four key measures law firms can consider before Christmas to prepare for next year and weather this perfect storm of fees and expenses, during such an uncertain economic climate.

1. We’re already seeing a slowdown of property commitments in the industry – reviewing office arrangements is a logical first step to reducing overheads. With most members of staff still working from home, law firms must consider whether they want to reduce office space on a permanent basis. It makes sense to base this on feedback from employees and on whether there’s an appetite for long-term flexible working.
2. Lockup also continues to be a hot topic for law firms, and now is a good time to commit to running this more efficiently. Firms can consider whether new processes can be implemented to ensure fee earners and finance teams work more efficiently together to secure payment of fees within a strict time period. Firms can introduce targets and incentives to securing fees paid within a certain timeframe, or train fee earners on the importance of this.
3. Firms can also consider a number of financing solutions available around PII and tax payments in order to manage some of the liabilities due in the next few months. Choosing the right financing solution will ultimately reduce the amount of capital the firm needs to operate over the next few months, which will provide invaluable breathing space as we navigate the new normal.
4. The government recently announced it’s extending the Coronavirus Business Interruption Loan Scheme, which is now open for applications until 30 November 2020. This offers law firms the opportunity to apply for a loan of up to £5m to cover any cashflow issues over the course of the next few months. This extension offers law firms another string to their bow when it comes to planning, in the form of another financial solution that’s completely flexible, with no repayments or interest due until the end of the first 12 months of the loan.