How can firms adapt their short-term finances to a post-pandemic normal?

Things are starting to look up for the legal sector, says Mike Stevenson at Iceberg, but changes in the landscape may mean firms need to reconsider their short-term finances.

Things are starting to look up for the legal industry. Smith and Williamson’s latest Law Firm Survey has revealed a great deal of optimism across the sector, as 69% of law firms surveyed feel reasonably confident about the business outlook of their firm.

It would seem the legal sector is starting to bounce back – but what has fuelled this recovery and what can SME law firm leadership do to maintain their trajectory?

When the pandemic struck, the Government rapidly rolled out a range of support initiatives to help businesses keep their heads above water. Smith and Williamson’s survey showed that the furlough scheme was widely adopted by the sector, with 70% of law firms furloughing staff, while the deferral of VAT payments was taken up by 30% of businesses.

The Coronavirus Business Interruption Loan Scheme (CBILS) was used by around one in ten law firms, offering businesses long-term cash reserves that they can use as a buffer as they work towards post-pandemic recovery.

SMEs were prepared for a crisis

There is certainly evidence that the financial crash of 2008 offered lessons for many industries, including the legal sector, as to how to deal with an economic crisis.

When the pandemic struck, building cash reserves became a key priority. The legal industry sprang into action – looking both outside and in for solutions to help navigate loss of revenue. As well as taking up Government schemes and exploring financing options with their banks, we saw SMEs within the sector make changes to improve billing processes and reduce drawings for partners.

This is certainly an ongoing journey for firms, which will require a continuous search for ways to make efficiency gains and reduce overheads, especially as firms navigate the next few months. There are numerous ways this can be done, one of which is moving to a permanent flexible-working office model that facilitates reduced office space costs. Another is to implement processes and incentives that reduce staff turnover.

Short-term financing options

As we emerge from the pandemic, legal businesses will need to adopt a flexible approach to managing cash flow issues. Maintaining high levels of liquidity will be helpful in ensuring SMEs are equipped for what could be an uncertain few months. As part of this, legal businesses might want to consider where shorter-term financing options fit into their plans – including around Professional Indemnity Insurance and tax payments.

The former might pose a challenge because the pandemic has rendered the insurance market particularly challenging. A recent report by broker Lockton outlined that premiums are at an all-time high as insurers prepare themselves for a barrage of claims. Tax payments, including VAT and partners’ tax, will need to be managed carefully now that deferring payments is no longer an option. Balancing short- and long-term financing needs will be key to creating a smooth, post-pandemic recovery.