Over a third of law firms could go to the wall
Thirty-six per cent of law firms in the East of England face going out of business over the next 12 months as they battle to survive the impact of the recession and the introduction of significant sector reforms.
Using figures from Bureau van Dijk’s ‘Fame’ database, the warning comes from insolvency trade body R3, which estimates that around 180 law firms in the region could fail.R3’s Eastern region chairman Shay Lettice, a partner at Cambridge UK accountancy firm Peters Elworthy & Moore, said: “The Legal Services Act – widely known as Tesco Law – allows non-lawyers to invest in and own legal businesses.
“Supermarkets, for example, can now set up shop in the legal marketplace, offering low-cost services such as conveyancing, wills and simple contracts.
“Most likely to be hit by this professional reform are the smaller high street firms, who will find it increasingly difficult to compete in this broader market.
“This is partly because small practices cannot afford the high level of marketing and branding that these new businesses will be able to draw on. It is also unlikely that they will have the resources or the technology to compete with these alternative business structures.”
R3’s research findings come as partners in legal practices have also faced the challenge of finding the funds by the end of July to make their second tax payment of the year.
Lettice added: “Limited Liability Partnerships, partnerships and sole practitioners – which make up the bulk of law firms – are not directly assessed for tax on business profits but usually arrange to settle individual partners’ liabilities. They generally build up a tax reserve to pay this, but with widespread restrictions on cashflow, many may have difficulty in covering this bill.
“Such payments require very careful planning and steps should be taken to apply for a reduction of payments on account if earnings are expected to reduce over the coming year. This time of year is known to put real cashflow pressure on firms and more often than not we see a spike in banks being asked to fund taxation liabilities.
“The legal services sector is a very crowded market and so firms should always practice careful planning and management of taxes. Not only can this help give businesses an edge, it can also make this time of year less daunting.”
• PHOTOGRAPH SHOWS: Shay Lettice
