Options for law firms facing cash pressures

Many law firms find their cash is under strain and they don’t have the ready cash to invest in improvements. In addition, some have a retirement looming and need to think about succession planning. In this blog we set out options available to law firms and discuss how getting business advice can help.

Pressures on cash

All businesses need cash, and the pressures on this precious resource are particularly weighty for legal firms, who have:

• High salaries resulting in considerable end-of-month cash outflows
• An unceasing need to make investments in bigger and better systems, to beat fraud and keep up with competitors
• Outgoing partners extracting their equity stake without incoming partners to counter the outflow

Traditional options

Banks

A bank loan may be attractive for its relative ‘cheapness’ when compared with other traditional forms of finance. Calling a bank loan ‘cheap’, however, might well be misleading, as it will often take time and administrative effort to set up – the costs of such a delay and the involvement of your time may well outweigh the apparent benefits of securing a low interest rate.

Partner equity

The traditional path of a new partner has been to stake their claim with new equity, and in so doing give the business a cash boost on arrival. Today, the ‘lure’ of partnership probably isn’t what it used to be, with a bias towards short-term lending from banks and with a vast array of other important things to spend money on. This could mean that a new partner is not there to counter the outflow when you need it most.

Alternative options

Alongside the traditional options are a range of others that may prove suitable.

If you’re hoping to invest in new assets as part of a business development plan, a Hire Purchase arrangement would be worth considering as you may find cheaper rates than a bank loan. There is also the option of a Finance Lease if owning the asset is not a necessity.

Peer-to-peer lending such as Funding Circle is increasing in popularity and availability, and can be quicker and easier to set up than a bank loan. Individual investors or “business angels” may be an even quicker source of finance.

How we can help

Whether struggling to meet monthly outgoings, or looking to invest in new technology to keep up with the competition, speak to us. Our dedicated Corporate Transactions team has a large network of financiers, small and large, and can provide business advice tailored to your firm’s particular circumstance.

For succession planning or general business advice, our Legal specialist team has a wealth of experience, understands the issues facing today’s law firms, and can help you make good business decisions. Call to talk to us on 0330 024 0888 or email enquiry@larking-gowen.co.uk – we’d be delighted to help!

Ellis Lake