What can law firms do to start 2022 on a strong financial footing?

Iceberg’s Mike Stevenson talks liquidity, savings, reflection, resilience and talent attraction – themes that will likely define the new year for law firms.

In a recent report, NatWest revealed that law firms’ bank balances at the end of 2020 were substantially higher than they were the year before. A wide range of factors were named that impacted this, from unused borrowing from government schemes and use of the furlough scheme, to the use of VAT deferrals schemes and the reduction of partner drawings and dividends.

While this would have been an advantageous position at the end of last year, many law firms are facing a very different year next year, with scheme repayments starting and deferred tax needing to be paid. The end of the furlough scheme in September also means that legal businesses will have lost a key resource that supported them in managing costs.

There are a range of measures law firms can adopt as we look to the new year, to ensure that they are equipped to manage all eventualities.

Building resilience through liquidity

As we look to 2022, one key focus for law firms should be building resilience.

Maintaining high levels of liquidity is a key part of this, which might be a challenge considering that firms will be facing much higher costs than those incurred throughout the pandemic.

In order to navigate this, it’s important for law firms to consider how they use credit and loan capabilities. Firms should borrow short to pay short – leaving long-term Coronavirus Business Interruption Loan Scheme (CBILS) or Bounce Back Loan Scheme (BBLS) cash in the bank to build long-term stability and resilience. When it comes to financing shorter-term liabilities, firms can look at shorter-term borrowing options that are tailored to those specific needs.

Learning and applying the lessons from the pandemic

The pandemic would have been a steep learning curve in cost-saving and it’s time for legal firms to apply the lessons learned.

Perhaps firms have explored moving to smaller premises, implemented long-term flexible working models, or streamlined processes to boost productivity. It’s time to do an audit of what processes have worked, and which ones you want to implement permanently.

Equally, it’s also key to look at processes and changes that might not have yielded the required results and to implement change if something isn’t working.

Future proofing by looking forward

It’s also really important for legal businesses to be forward looking and plan for some of the challenges that they might encounter in the year ahead and beyond.

Talent management is an example of an industry issue that firms can plan for. Ensuring adequate financial incentives, training platforms and a clear promotion structure is a great way to attract talent, as is shining a focus on culture and wellbeing.