In May 1994, I was not entirely optimistic about the year ahead. The last quarter of this firm's 1993/94 year saw us quieter in business terms than we had been for some time – the decline of our reconstruction and insolvency work seemed to herald the end of the
recession, but it wasn't matched by an inflow of the sort of work we are accustomed to seeing when our economy is on the up.
Generally, clients are more fickle than before and there still is an increasing downward pressure on chargeable fees. Gone are the days when we can expect a premium above our time-costing rates.
Bearing in mind that this firm has to despatch over £300,000 of bills on every working day throughout the year just to meet London operating costs and salary bills, ie before paying partners anything, I decided to instigate a review of all areas of our business, to determine how we could enhance profitability by increasing both market share and margins. My view was that while increased profits are not the raison d'etre for a business, they nonetheless create the strength which provides job security for all of us.
It seems ironic that my pessimism existed at a time when the legal press was describing us as the most profitable firm in Britain. As partnerships are not required to publish their accounts, it is impossible to make comparisons. The reporters failed to comprehend how professional partnerships finance themselves and seemed to think that we dividended 100 per cent of our profits out to partners.
Sadly, this is not the case. The cash requirements of the business of any law firm are such that it would be financial suicide to diminish our bank balances by distributing all the profits. In London alone in the past year we paid out over £6 million a month (excluding partners' pay) of which nearly £3.5 million represented wages and other staff costs, and over £1 million a month on office accommodation.
Unlike limited companies, we cannot raise capital by issuing shares, and as a business borrowings are kept to a minimum – hence working capital is provided both by partners injecting their own money into the business and by the firm retaining a portion of the profit it generates.
Ultimately, cost-cutting is not the solution to declining profitability – increasing our client base is. The review is now over and the changes it recommended are in place.
Constitutionally, we have a new managing partner; a redesigned partnership committee structure; and departments with a new focus, encouraged to place greater emphasis on winning clients and client-care.
Financially, there have been improvements during 1994/95, proving my early pessimism to be misguided.
Lawyers cannot afford to be complacent. The competition is still as fierce as ever and businesses like ours have to continue to grow, to provide the jobs to meet the aspirations of all our staff. And we have to continue to grow internationally, since the type of client which can and will pay for our services wants us to be a multi-national business. We also have to be at the cutting edge of technology – clients come to us because we are innovative, commercial and responsive to their needs.
We have begun this year in a more optimistic – though still cautious – mood than last. With 15 world-wide and five local partners this calendar year, and recruitment in almost every department, we are contemplating further expansion overseas and are studying options in Italy. And at least at management level we believe we can succeed. If we do, it will be thanks to efforts at all levels.