2020 Year in Review - Legal Sector

21 December 2020

The thought of lockdown round two will have given many partners flashbacks of the difficult economic conditions experienced during the spring and summer of 2020. However, from recent surveys there are strong indications that there is much more market optimism than most might think.


Cash flow management has come to the fore in recent months for many legal practices and through various government support measures and important operational decisions, most legal practices have weathered the storm and are likely come out of the other end in stronger shape.

Findings from the Law Society of Scotland’s recent surveys and research on the economic impact of Covid19 has indicated that the pandemic is now having less of an impact on legal practices at the minute, with only 70% of surveyed legal practices experiencing a decline in their turnover (vs. 90% in April), whilst only 53% now believe that the pandemic is negatively influencing new business referrals.

As mentioned above, there have, and still are, government funding/ support available to legal practices. For people intensive businesses such as legal practices, the furlough and job retention schemes have been essential for to ease the strain of reduced revenues. From the Law Society of Scotland’s survey, around 85% of respondents now suggested that they would be unlikely or very unlikely to take advantage of job support schemes after 31 October 2020 for chargeable staff. Further data from the Law Society of Scotland also reports that almost 30% of legal practices surveyed have in fact experienced head count growth, which again demonstrates the optimism which is building in private practice.

Despite the evident optimism in private practice, we are still strongly encouraging legal practices to keep close to their cash flows in order to maintain resilience. Below are a few recommendations.

Cashflow Forecasting: Forecast for every possible eventuality, as well as what the business will look like when normal service resumes. Remember that any deferred or time-to-pay agreements still need to be paid. Make sure these are included in future cashflows and forecasts to prevent any nasty surprises in a few months.

Work in Progress (WIP): Review WIP to see what can be billed now and in the short-term. Be realistic and deal with WIP balances which are not billable or not recoverable in full.

Actively Manage Accounts Receivable: Remember that clients are likely to be in the same boat, so communication and compromise are so important. Find out when and what clients can pay. Whilst wanting to generate as much cash as possible, it is worth remembering that it is preferable to receive some payment rather than risk getting nothing at all.
Controlling Expenditure: Review outgoings and filter liabilities/recurring expenses by amount, frequency and whether they are critical for on-going trade. Halt any expenditure that is not vital. Recruitment freezes, particularly where firms hire an intake of graduates on an annual basis, has been a common strategy across the sector.

Business Plan: These have had to be fluid by necessity for most businesses this year (in many cases ripped up altogether) however it is important for firms to focus getting back on track in 2021 as quickly as possible. This means developing a business plan that defines what success should look like for professional services firms in 2021. This should take account of key observations and lessons learned during 2020 and set clear goals and milestones for 2021, whilst remaining flexible enough to recognise that much of the economic shock of COVID-19 still remains ahead of us.

Paul Mosson, Executive Director of Member Services, Law Society of Scotland commented; “On the whole Scottish private practice solicitors’ firms have weathered the pandemic much better than originally feared. This is in no doubt a result of the profession’s tenacity and dedication to doing the very best job for their clients while investing in their infrastructures to keep legal services and the administration of justice operating.

However, that has come at a huge cost to everyone and difficult choices are still being made up and down the country. Furthermore, the challenges are not over and as we move from recovery into building resilience there remains a long road ahead full of change, bringing with it periods of anxiety and frustration. Understanding what is available from Scottish and UK Governments is not always easy but we believe that our members should at least be aware of what help they can access even if they chose not to use it. As the uncertainty continues and we confront one curve ball after another we will continue to work with AAB to help members navigate support and financial options so we can build a more resilient future."

AAB are proud partners of the Law Society of Scotland. You can find out more about how we work with firms in the Legal Sector, and their clients, here.

Latest Posts

Get the AAB Blog Digest