Survival of the fittest – Countdown to Alternative Business Structures

 In Comment

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ALTERNATIVE BUSINESS STRUCTURES

The Legal Services Act 2007 fired the starting pistol to the race for the provision of legal services by all sorts of new legal service firms instead of the traditional law firm.

The new era of ABS, which can be licensed and operational from 6 October 2011, is a race we all knew about; some may have been training for it for some time but the majority of practitioners were busy with fee earning work wondering how they would find work in future and how they might be organised to deliver that work was probably the last thing on their minds. Then the economic world as we knew it collapsed and with it the market for professional services, amongst other things; firms have had to make drastic, radical and short-term changes to stay solvent.

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This is not a good time therefore to be facing some fundamental structural changes in our profession but they are upon us. If firms make only short-term decisions without reference to the new market for the provision of Wills, Probate, Trust & Tax services then any survival will be short-lived. It is necessary to have a plan which is flexible enough to address current difficulties but in alignment with the longer term project. False starts cause delay and may lose you the race.

Which firm do you aspire to be?

In the excellent tradition of future thinkers can I encourage you to stand in the year 2012 and observe what the legal services world might look like? It should help you to make current changes with future change in mind.

  • Legal Disciplinary Practices (LDPs) will have been available for three years and may by now be coming an established part of the competition. LDPs are firms owned and managed by a combination of types of lawyers and can include a minority of non-lawyers who own no more than 25% of the business. Suitable perhaps for the niche business which wishes to service a particular client group with specialised skills, for example the Alpha Alliance partnership consisting of:
    • A senior non-contentious Will, Probate, Trusts and Tax solicitor of well known repute
    • Two flamboyant and successful senior contentious practitioners from the Bar for professional negligence and contentious probate
    • Three FILEX members each specialising in one of Wills, Probate and Trust administration
    • One accountant who acts as a manager and who provides tax advice & compliance work
  • The Legal Services Board (LSB) will have been deciding on which legal services should be regulated since the autumn of 2010 and may by now have decided to regulate Will Writing even though Probate was de-regulated. Regulation of Will Writing will now raise standards and may make complaints about solicitors more common whilst at the same time give a higher status to members of the Institute of Professional Will Writers and the Society of Will Writers whose members can now claim to be regulated to the same standard as solicitors for this work.
  • The Office for Legal Complaints will have been empowered to deal with all complaints arising from any regulated body since the autumn of 2010 and will be developing a uniform approach to dealing with complaints of the various ‘lawyers’.
  • The ground rules for an Alternative Business Structures (ABS) will have been released recently and the jockeying for position to attract suitable investors or commercial entities who might want to acquire the traditional legal practice will have been going on for some two years.

An ABS differs from an LDP in that it is any body which provides reserved legal services to “the public or a section of the public” and which has a “non-authorised person” (i.e. a non-lawyer) as a manager (partner, director or member of an LLP) or with an interest in the body such as holding shares or exercising control of voting rights in the entity. This means that Omega ABS Ltd. might consist of:

    • Woodlands Funeral Services which has collaborative sourcing arrangements with other undertakers so that national coverage can be offered
    • Several Estate agents – one for each region in the England & Wales
    • Several former Probate Registry staff who did not want to move following the merger of several Probate Registries each running a team of paralegals using a first class case management system and estate accounts packages via networked computers
    • A limited number of solicitors able to deal with technical queries and instruct Counsel or deal with tax matters
    • A marketing department consisting of ex Bank/ Building Society and Insurance company staff and a large budget to create useful referrals; web site, blogs, podcasts and information services accessed on line by customers
    • An innovative legal expenses and fees funding scheme like that offered by Key Business Finance http://www.heritable.co.uk/professionsfinance
    • Excellent benefits package for staff with a crèche, part-time working encouraged; training schemes; and opportunities to manage regional multi-disciplinary teams
    • Networked systems allowing for home-working managed by a team of IT experts always on the look out for ways of improving the workflow and cashflow of the business
    • Central low cost office space located in an inexpensive area of the country with a facilities manager
  • The ‘Traditional High Street Law Practice’ which has been in business since 1880 will still be about but will be struggling to find the budget to invest in new technology and the staff willing to work in the business and invest in the future of that type of business. The partners would like to retire but cannot attract people to take over the business and buy them out. The partners will need to change the way they think about the supply of legal services, the markets which are open to them; the skills needed to supply clients in those markets with products and services which they want at a price they are willing to pay and the firm can afford to offer whilst maintaining or even improving the bottom line, if they are ever to retire!
  • The sole practitioner who wants a different work-life balance and has a strong network of contacts and potential customers who like her needs services to fit in with their lifestyles may find a highly personal service offered from a home office with excellent computer and web connections will produce a pleasant profit for the risks engendered without being accountable to anyone other than her customers.

Brave new world?

This brave new world of legal practice appears to have some similarities with what has happened to travel in the Noughties: the choice of holiday will be last minute and via a web site not a travel agent; will at one end of the spectrum focus on low-price no frill airlines and at the other end on the added value of the business lounges, limousine service to collect and drop off the passengers and the quality of flight and associated services. Nowhere will it matter who was the pilot or who was the air steward; nowhere will it matter who regulates the different parts of the service all that will matter is that the customer received the quality of services, products and processes he paid for when he wanted them, even if this was a booking at midnight on Christmas Eve!

Which model would you or your firm aspire to be? Do any of the models look familiar and do you have the know-how to find a suitable model to be working towards? Would you like to be like Alpha Alliance or something quite different? Do you know what you would need to do to achieve it?

The Solicitors Regulation Authority (SRA) has already begun the work on the frameworks for the regulation of the new firms of the future and will be competing against other front-line regulators for your custom. Do you have a preference as to whether you would want your firm regulated by the Bar Standards Board, the SRA or the Council for Licensed Conveyancers? Do you know what difference it would make?

Depending on your view of risk and the type of work you are technically equipped to do your vision of the future may be moving towards the sole practitioner model with lower income but more job satisfaction or mobilising the hidden business high flyer inside you to raise your part of the firm into an ABS of which to be proud.

A winning approach

Any successful change requires careful and inspired thinking. To win the medal you have to be in the final race not just the heats; you have to be at the right track not in the wrong place; you have to have trained and not failed any tests. In other words you have to remain in business at the moment but know what you need to be working towards. Current decisions must not make it impossible to achieve your goal.

Which means you have to focus on:

  • The big trends in the legal world such as the sophistication of the clients and their desire for packaged and web enabled services; outsourcing, collaboration; commoditisation of services; innovation and higher value added activities; finding and keeping the right talent;
  • How profits are made and increased in the different models which means an honest appraisal of current charging structures; utilisation of the right people and of their time; the leverage that can be achieved by getting the right work to the right level of skill in the firm and the need for efficient management of work-in-progress and its speedy conversion to cash;
  • The way you can use technology to improve the processes you follow to deliver the service effectively and efficiently and to communicate with the consumer of your service directly, virtually and through mobile handsets;
  • Having the right people with the right level of know-how to do the job in this new world

Try and stand in the future as I have tried to do and look at what the competition will look like and where your business will need to be positioned by then to make the sort of profits you want in the way that you will enjoy.

Be prepared to have an open mind, look at other industries and the type of services which you admire in those industries and see if they can inspire you to be creative and innovative.

Dare to be different in your analysis of what the future client will want and how they will want the service delivered and think out of the box about what you can do to find these clients and address their wishes.

Have some serious fun making ‘playing’ cards with the name of the type of service or business which may be part of what you currently offer or which is allied to what you do or with which you have contact in the process of delivering your service and throw them in the air; see how they fall. No matter how peculiar or wild the order try and think of a way of managing the combination of steps and processes which turn-up from this haphazard pile and then see if it gives you some much needed inspiration for looking at what you already do completely differently.

Look carefully at where expenses are likely to be incurred in the future and how you would fund them. Is there a type of investor who might be interested in buying a stake in your firm or buying the whole thing? What sort of return on their investment would such a person or business be looking for? How can you achieve that level of profitability over the desired time frame? What level of funding or investment would deliver that kind of return? Private client work we all know is a steady earner not usually with many peaks and troughs. It is good for cash flow and would suit someone looking at regular modest profits rather than the business which is seeking quick high returns from which they can easily move on.

Speak to all the entrepreneurial people you know – find out what makes them tick; how could you learn some of their behaviours and their skills; how could you harness some of the things they have learnt along the way and truly work hard at applying this knowledge.

Be totally ruthless in looking at your firm’s approach to HR and be truthful in answering the hard questions as to what you currently do to address staff concerns about the work-life balance; benefits and opportunities. Attracting and keeping the infantry of this world as well as the high flyers is vital and you need first class strategies and policies with which to do it.

Conclusion

All of us in the legal profession are experiencing turbulence. We want to bring our legal firm’s ‘aeroplane’ down to a soft landing but to do that we have to have:

  • A skilled captain at the helm who knows where she is heading and can take with her a team who trust her.
  • An airplane fit for purpose one that can withstand the vagaries of the weather and which is properly maintained by the people on the ground.
  • Invested in suitable technology which can provide safety information and communicate internally with our customers and on-board staff and externally with the authorities and our back at base staff to keep them all in touch with what is happening.
  • Proper regulation to ensure we put compliance with our operational regulators as the top priority and make sure our insurance is at the right level in case the worst happens.
  • Invested in excellent staff training which enables all staff involved to be able to help our customers in difficult circumstances.
  • Invested in research and development to ensure that we were offering all these things at a level which was no less than was expected of us and hopefully to a competitor beating level.

Only you can know whether you would want to be travelling with Alpha Alliance or Omega ABS Ltd should the worst happen but not to have thought about the options at all leaves little room for sympathy.

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