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
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
1. Take a proactive approach
2. Adhere to SRA code of conduct
3. Use a free benchmarking tool
Empower your firm with the knowledge it needs to make informed financial decisions and navigate future challenges effectively.
4. Consider raising finance
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.
