In Industry Insights

This is a guest post from our friends at Gemstone Legal. The original content can be viewed here.

In the ever-changing landscape of the legal profession, one thing remains constant: too many law firms undervalue the role a proactive cash flow strategy can play to fuel long term business success.

Law firms fail for many reasons, but one of the most common is due to a terminal cash flow problem. As with all businesses, law firms are no exception to challenges associated with cash generation and ultimately no firm is necessarily too big or successful to fail.

It’s no secret now that law firm insolvencies have been increasing year on year, and unfortunately this is a trend that is predicted to continue, hence to the focus on financial stability and viability.

The increased risk of firms going under is unnerving for insurers and lenders, resulting in a tightening of the acceptance criteria for loans and Professional Indemnity Insurance. It’s easy to spot the potential for a vicious cycle getting underway here if we’re not careful…

What this highlights is that it’s now more important than ever for law firms to be wary of their cash flow position and to start prioritising financial stability. Despite the current challenges in the industry, there is still ample opportunity for firms that adopt a proactive approach to cash flow… The question is, will your firm be one of them?

4 Benefits That Come With SRA Financial Stability & Viability For Law Firms

Let’s all just admit that cash flow management isn’t always the most glamorous or invigorating of tasks. It’s doesn’t usually result directly in new business, and it’s unlikely to be an area of your own expertise or interest. It’s for this reason that many law firms overlook cash flow management to the degree that is required, perhaps with the assumption that if they are busy with work, cash flow will look after itself.
With that in mind, let’s think about financial stability a bit differently, and look at 4 benefits that come with running a financially stable & viable law firm:

1. More options with regards to PII providers

The cost of doing business is on the rise, and insurers are increasingly worried about the risk of law firms going under. This means that insurers are looking at law firms differently to assess their levels of viability.

Being able to evidence the approach to sound financial management will help your broker to secure the most favourable terms available.

2. Better finance options & acceptance rate

For many law firms, effective financing throughout the year enables them to maintain a healthy cash flow and ensures that large costs, such as PII renewal, tax payments or recruitment costs are met in a timely fashion.

With the country now officially in a recession, the legal industry has clear headwinds to overcome which are likely to impact the appetite of funders including possible restrictions on the range of available funding solutions. This is especially true in areas such as personal injury or firms with a 100% focus on residential conveyancing.

By maintaining healthy cash flow and keeping your law firm in a financially stable position, you massively increase your options with regards to funding.

3. Helps you to sleep at night

If you’ve experienced serious cash flow issues at your law firm, you won’t need to be told about this one…

When your business is facing very real cash flow challenges, whether it’s due to PII renewal, a larger than expected tax bill, unpaid invoices, or anything else, it can be a huge emotional burden for the professionals behind the business.

It’s now actually been shown that chronic stress alters our brain chemistry and causes poor decision making, which is exactly the opposite of how we want to be when our company is on the line…

When cash flow is in good order, law firms can operate with confidence, think strategically, and plan for the future.

4. Support personal ambitions

When your law firm’s finances are in a healthy state it provides you with the opportunity to create an environment where professionals can pursue both personal and professional goals, fostering a company culture of growth and fulfilment.

To highlight all of the benefits that come with a positive company culture we’d need a whole other article, but to name a few:

  • Increased commercial creativity
  • More diverse skills set amongst staff
  • High employee satisfaction, higher retention rates.

This can even be taken a step further, with the provision of annual training budgets, enrichment days and charity days, to further boost both skills and morale within your law firm.

Initiatives such as these are only possible in firms that are financially stable. The upside of such measures are not always immediately tangible, but in the long run, schemes such as these can give your law firm the edge it needs.

How to ensure that your law firm is financially sound

So, now that we’ve looked at the benefits of prioritising your cash flow and ensuring that your law firm is financially stable, let’s explore how to put that into practice.

1. Take a proactive approach

As with all parts of business, a proactive approach is the best way to ensure that your law firm achieves and maintains a healthy cash flow position. This is equally true for established, successful law firms as it is for start up practices.
Law firm leaders must think long term about potential threats to their financial stability and how they can mitigate against them, both now and in the future. Start by looking to establish stringent protocols to monitor cash flow, budgeting, and expenditures effectively. Next, you can explore opportunities to diversify revenue sources, reducing reliance on a single work type.

2. Adhere to SRA code of conduct

By respecting and closely following the SRA Code of Conduct, law firms will go a long way to ensuring that they operate in the right way on all fronts.
By keeping standards high and maintaining compliance with the regulations, law firms will naturally improve their business operations, which will help guide them towards making more responsible cash flow decisions over the long term.

3. Use a free benchmarking tool

How do you know whether your law firm is doing everything that it can to optimise its financial stability?
We’ve developed a simple yet powerful tool designed to offer actionable insights into your firm’s financial health. This user-friendly online assessment takes only five minutes to complete, providing a comprehensive evaluation of your firm’s financial strengths and areas for improvement.

Empower your firm with the knowledge it needs to make informed financial decisions and navigate future challenges effectively.

4. Consider raising finance

We’ve discussed some of the benefits that come with maintaining a strong cash flow position over the longer term, and the importance of taking a proactive approach to financial stability.

Well, raising business finance is often the best (and sometimes only) way to preserve your cash flow when law firms are faced with large costs such as PII renewal or tax deadlines.

If you leave it too late, you’ll likely be in a less-than-optimal position when submitting your finance application and may not get access to the funding that your law firm needs. The solution here is again a proactive, preventative approach. Start your finance application process in ample time.

At Gemstone Legal, we specialise in providing tailored financial solutions for law firms, ensuring seamless access to the funding needed to navigate critical financial milestones.


In conclusion, the pursuit of financial stability and viability is not merely a strategic imperative but a fundamental responsibility for law firms. By embracing proactive financial management practices and leveraging expert guidance and support, law firms can fortify their financial foundations, ensuring resilience and prosperity in an ever-evolving and increasingly challenging landscape.
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