The Covid-19 pandemic has hit law firms hard and forced them to implement business continuity plans and utilise different ways of working, never thought possible 12 months ago.
But with advances in technology and amendments to the SRA regulatory framework, will this lead to the evolution of legal practices? Law firms that don’t evolve will be left behind – Therefore they must evolve to survive….
Law firms have traditionally been office based with in-house IT systems stored in server rooms or backed up on premises. Servers are however expensive to purchase and maintain. Worried about data security and compliance with data protection, firms have been hesitant to move to Cloud software systems, VOIP telephone systems and remote working, preferring the safety net of internal, locally saved data.
A recent survey by Thomson Reuters suggests that upto 40% of small firms time is spent on administration and non-billable activities such as staff management, compliance, business development and office management. Utilising technology to speed up workflows and work more efficiently will help to reduce non-billable time and increase billable hours and profitability. 40% of the average fee earners annual time, equates to 1248 hours of admin time, not fee earning.
Reviewing IT systems within firms is integral to improving workflows and reducing admin time that bites into fee earning hours. Virtual and remote desktops are becoming more and more popular with data hosted by IT service providers, allowing fee earners to access their office desktop from anywhere.
Looking at Practice Management Systems (PMS), utilising cloud based systems allow fee earners to work more flexibly, on the move, hot-desking or even working from home with access to the same documents and data.
The accounting function of the PMS has evolved to automatically download search fees from providers such as Infotrack in addition to automate credit control chasers for overdue bills and automate direct debit collection and card terminal payments for outstanding bills.
Reviewing office phone systems, Voice Over Internet Procotol (VoIP) utilisation allows fee earners again to work flexibly out of the office or from home without needing complex switchboard systems or telephony equipment.
Utilising voice to text digital dictation which is becoming smarter, removes the need for manual dictation on tapes, handed to secretaries and manually keyed and edited.
With staff forced to work from home, many Legal practices will be evaluating the need for large premises or high street offices and begin to explore other options.
The evolution of the virtual law firm model has focused on low cost, short term serviced office accommodation to expand or service new locations. Fee earners who need to meet with clients can utilise pay as you go meeting spaces with usual office facilities such as post services, reprographics and tea/coffee supplies.
Some firms may look at reducing office space and implementing hot-desking for staff in the office, with some staff working from home or from client premises. This can be easy to set up when bringing in cloud PMS systems and VoIP telephone systems.
Utilising tools such as Slack, Microsoft Teams and other collaborative software, staff can work together while not being in the same office. Microsoft Teams allows staff to screenshare, video call and work on documents jointly.
New Start-Up Launches
A 2019 survey found that sole practitioners were more profitable than small firms with between two to four partners in terms of Profit Per Equity Partner (PEP).
With changes in technology, the regulatory landscape and lower overhead costs, partners from bigger firms are questioning if they can go it alone and set up their own practice, taking advantage of remote working, technology and flexible on demand resourcing and support.
Sole practitioners can be agile and if utilising technology well, be more profitable than small firms. On average the lock up of sole practitioners was 65 days compared to 130 for small firms in 2019.
A 2019 Law Society report suggests that just under 90% of fees generated by fee earners at SME firms were used to cover their costs. With salaries and overheads increasing quicker than fees, this is leading to a reduction in net PEP which has not been seen for a number of years.
The report calculated that a firm must generate £109,379 per fee earner before they contributed any profit. This was made up of fee earner cost of £52,027, support staff costs per fee earner allocation of £21,697 and non salary overheads per fee earner of £35,655.
Changing Business Structure
With the changes in the legal regulatory landscape in November 2019, some legal practices offering unreserved legal services have transferred part or all of their business into an unregulated entity or are exploring restructuring their activities. Some have completely closed their old practice with the requirement to purchase run off insurance and set up a new business entirely.
By setting up or running an unregulated entity, there are savings on Professional Indemnity Insurance compared to being an SRA regulated entity in addition to reviewing the need for to hold a practicing certificate. If not holding the title of Solicitor and providing unreserved legal activity, cost savings on PII, practicing certificates and contributions to the Solicitors Indemnity fund soon mount up and make commercial sense to amend the business structure.
Historically, legal practices have had all staff employed on payroll with support teams to look after Finance, IT, HR and Compliance. This inflexible resourcing is expensive and means that firms pay for teams that are not fully utilised.
With changes to the SRA standards in November 2019, freelance solicitors are now allowed to offer services to legal practices, allowing practices to be smarter and leaner with in-house teams and “buy in” on demand freelance services or consultants when required.
Furthermore firms who do not need full time support staff have started to utilise outsourced and on demand admin support from outsourced service providers. This allows them again to “buy in” Finance, HR or IT support only when it is needed, providing large cost savings on having in house support teams available “if” they are required.
In the last decade, larger firms have explored “onshoring” and “northshoring” its support departments away from London to cities such as Manchester, Sheffield and Glasgow to reduce overhead costs. Moving Finance, HR and IT teams to cities with a lower cost base, provides savings in terms of office rental costs and salary.
Touching on all of the above, if utilising cloud technology, reducing office space and requiring flexible, on demand support to “buy in” as and when required, services such as Outsourced Legal Cashiering can be incredibly cost effective.
Law firms hiring in-house Legal Cashiers often only look at the overhead gross salary cost, but the true cost is often much higher when taking into account employer NI, employer pension contributions, onboarding and recruitment costs and office overhead recharges including rent per head and support recharges. Typically a Legal Cashier on the average UK annual salary of £28,000 can therefore cost in excess of £40,000. If that Legal Cashier is not fully utilised each day, law firms are literally throwing away money. If a Legal Cashier is for example only 75% utilised, that could be £10,000 of non utilised and wasted cost annually per Legal Cashier.
When looking at the 2019 survey above that indicates that 90% of fee earners income goes towards costs, including support staff, it is clear that any profitable firm must bring its support staff costs down and work more flexibly.
By outsourcing, legal practices can buy in or utilise on-demand support only when they need it, with immediate cost savings. Outsourcing can help start ups and existing firms to only pay for what they use and concentrate on fee earning rather than losing time to admin and other non-billable tasks.
Additionally by outsourcing, firms have holiday and sickness cover in place, have access to a broad team of experienced experts and workflows can be more streamlined. These offer cost savings too.
If you are exploring starting your own firm or restructuring post Covid-19 to work more efficiently and increase profitability and exploring available technology, working with a more flexible workforce are key factors.
If you have an in-house Legal Cashier, consider if they are value for money, if they are fully utilised and if they are a key part of your in-house team or if you could become more profitable and flexible by outsourcing the role.
Ascentant work bespoke with each client to ensure that it can be flexible, proactive and meet each client’s workflows to fit in with their own processes and needs.
For a confidential no obligation discussion, contact firstname.lastname@example.org or call 01332 981920 to find out more.