How struggling SME law firms can innovate to survive the Covid-19 pandemic
George Bisnought, founder and managing partner at Excello Law, says the pandemic has not been easy for some SME law firms but that doesn’t mean they can’t still innovate.
SME law firms are facing intense pressure from compliance burdens, a depressed economy, and the increasing cost of professional indemnity insurance (PII) premiums.
A recent survey by Viv Williams Consulting warned that up to 3,000 smaller firms could close or merge. In interviewing 210 law firms, whose turnover averaged £2m–£5m, the survey found that just 20% thought their firm would remain unchanged in terms of size or structure post-pandemic and 45% had permanently reduced back-office personnel.
The immediate reaction of many firms facing financial pressure is to cut costs, with cutbacks to support staff, such as junior lawyers, professional support lawyers and risk and compliance officers, being a common initial focus. But this response can create inefficiency and risk, as it means more senior staff have to take on those tasks. Similarly, when lawyers are made redundant, the remaining team is often left in the stressful position of managing higher levels of work.
For many firms, the government’s Covid-19 support schemes have been a lifeline – and firms must plan for what happens when they end. A strategic review of overheads is important but office space and equipment should be reviewed first, not people. Check break clauses, renegotiate contracts, consider a smaller office, rent out unused space with partner or introducer firms, such as accountants or independent financial advisors.
Keep moving forward
It’s also worth looking at outsourcing functions. Most back-office support can be provided seamlessly and more cost-effectively online, including payroll, recruitment, HR, paralegal, admin & secretarial, to finance, IT, marketing and compliance.
By applying these options, your lawyers are enabled to focus on client services, building relationships and driving profitability. Using a few service providers, or a one-stop-shop to provide a single, secure IT interface, can bring significant benefits in reducing the day-to-day administrative burden.
In order to bounce back better, maintaining revenue is paramount – increasing investment in online marketing and business development, rather than cutting activity, should be a key focus. Small firms need a comprehensive digital strategy – not just a website, but a rolling programme of content development distributed through social media, business listings on browsers like Google and Bing (particularly important if you have a strong regional presence), email campaigns, virtual seminars and frequent updates to maintain visibility with clients and prospects during lockdown.
Put people and team unity first
However, The Law Society Gazette recently noted a more radical change in the profession, highlighting that many new mergers “are the product of one firm needing a quick exit after the insurance renewal bill tipped them over the edge”. Thanks to escalating PII costs, we’re increasingly seeing smaller firms and sole practitioners merge to create economies of scale.
For some, this is the only option, despite the tensions and fissures in team cohesion that can result from a merger. For others, an alternative solution is to work within a specialist network on a fee-sharing basis, which helps to retain culture, branding and team identity, when supported by comprehensive back-office support.
It’s also clear we’re now going through a fundamental step change in how UK legal services firms operate. This is driven by economic conditions, technological development and wider cultural changes in how we want to live and work. The pandemic has radically accelerated the trend towards homeworking, while IT innovation and AI are driving systems and processes towards greater automation of previously labour-intensive and volume tasks.
Many staff appreciate homeworking and expect to be able to continue to work this way in the future, at least to some degree. Although that will reduce costs, other challenges will remain: retaining culture, developing relationships, supporting training and maintaining informal social networks.
But there are solutions to these issues. Initially embraced by tech companies, virtual networking spaces (like Collab and Kosy) offer a fully-interactive virtual office for co-working, meetings, training sessions and social events. For law firms undergoing radical change, they provide a cost-effective way of preserving a sense of ‘team’.
Ultimately, the firms that commit to these permanent financial and cultural changes, as lon as they benefit their clients and staff, will both survive in the current crisis and flourish in the long run.