Ortus Group is trusted to find the right home for a nearly twenty year experienced consultant with their own client base and potential for much more growth that will be difficult to acheive within their current environment because of panel limitations. We are researching the market currently but would welcome outreach from interested parties.Get in touch to discuss this project or something new
About Colin White
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National firm HCB Solicitors adds three more offices to its nationwide offering following completion of a deal brokered by Ortus Group.
HCB Solicitors has expanded by acquiring Thomas Guise Solicitors with offices in Worcester, Studley and Birmingham City centre. This latest acquisition represents HCB entering Worcestershire for the first time, increasing their national footprint further.
In April 2019, Managing Partner and owner of Thomas Guise, Wayne Thomas approached Ortus Group to advise on merger planning. After initial meetings with several firms, HCB became an easy choice as the right option for Thomas Guise. Wayne Thomas commented, “This is a great milestone for Thomas Guise and a testament to the quality of service we provide. I believe that we can benefit from HCB’s scale and resources to further develop the business and very much look forward to working with them. I would also like to thank Colin White and his team at Ortus Group not only for introducing us to HCB but also for their professional support and guidance throughout the transaction.”
Managing Director of Ortus Group, Colin White said, “Thomas Guise is an excellent firm with a strong commercial practice that a number of other firms were interested in, but the way in which HCB responded to the opportunity showed very clearly from the very first meeting that they were the best option for Thomas Guise. “I’m delighted for Wayne and believe the business and staff will be in very good hands under the new ownership structure”.
CEO of HCB, Mike Gahan said “We are delighted that Wayne and his team are joining HCB Solicitors and I’m sure they will be instrumental in helping Worcestershire to become an important region for our national business. “This acquisition is the third deal HCB has completed with Ortus Group who were instrumental in not only bringing us together, but importantly, helping the deal over the line.
Since the dawn of the digital age, the nature of crime has changed. Cyber-crime might not immediately seem as scary as a break in at home or work, but it is by no means any less sinister and its consequences can be even more far reaching; the new payload is information.
Cyber-criminals are staging dramatic new heists every day. In the UK, law firms are among the top targets for these elaborate cyber-crime schemes because the information these organisations keep is extremely valuable; the cyber-criminal’s golden goose. While the data that law firms hold is generally first prize, law firms are also regular targets for traditional cyber-robbery due to the cash they often hold in their client accounts so it’s more important than ever before for UK firms to be vigilant.
A 2019 article on natlawreview.com cited that “25% of all law firms practising in the United States alone have experienced at least one data breach”. And the UK’s National Cyber Security Centre stated in 2018 that £11 million of client money was stolen from UK law firms due to cyber-crime in 2017-2018.
The most common threats:
Ransomware: This denies users access to a company network or information until a ransom is paid. Alternatively, the proprietors of the malicious software threaten to publish sensitive information unless they are adequately compensated. This is potentially damaging to law firms for obvious reasons. In 2017, one of the world’s largest and most damaging ransomware attacks hit several global companies including among many others, law firm DLA Piper. The software, dubbed “NotPetya”, originated in Russia and traveled around the world, encrypting company files and demanding large sums in Bitcoin before they were prepared to decrypt them. Even though DLA Piper identified the attack early on in the UK, it could not be prevented from spreading. This was because of DLA Piper’s “flat network structure” throughout all of its global branches. The attack cost DLA a fortune in overtime and lost revenue, and they are still trying to recoup some of the funds in a legal battle with their insurer Hiscox. They have also (at great expense) revised their network structure.
Phishing: Phishing is a common “cyber-con” that tricks users into giving away sensitive information – things like passwords, banking details, crucial identity-related information – or money. Phishing attacks can also be used to spread malware. DLA Piper were also among many of the top law firms that were hit recently, when several UK firms became the victims of cyber-criminals who posed as their representatives and sent emails to clients. Ortus Group have been told that one of the larger law firm ‘mergers’ in the last decade was because of £2m being duped from a client account and the insurers refusing to pay out because there was no adequate cyber policy. The emails coaxed recipients into paying funds across to fraudulent accounts. Scammers set up email addresses that appeared to legitimately belong to the firms to make the scam more convincing.
Compromised emails/email fraud: This method is a spin-off or scarier “sequel” to phishing email attacks. In these cases, cyber-criminals intercept emails between law firms and their clients, changing bank details so that the client unknowingly pays the criminal and not the firm. Alternatively, in a similar technique to the phishing example above, criminals will “spoof” a senior staff member’s email address and send emails to less senior staff members demanding that payment be made to a third party.
What are the consequences of a cyber-attack on a law firm?
When data is breached, the consequences are far-reaching. Leaked confidential client information can adversely affect the outcome of legal disputes. It can also put clients at risk of cyber-attack themselves. Besides the financial damage data breaches can cause, the harm done to a firm’s reputation as a result of compromised client data can be irreparable. And if client data is compromised severely enough, the law firm becomes vulnerable to General Data Protection Regulation (GDPR) violations and lawsuits. Loss of income, public relations disasters, loss of clients and loss of information are all part of the domino effect that cyber-crime can set off.
Who else has been hit?
As a result of their email system being hacked, Anthony Gold Solicitors in London had fraudulent emails sent to approximately 16 000 email addresses on their server, according to an article on lawgazette.co.uk. Other UK Top 100 firms that have been hit include Clifford Chance, Berwin Leighton Paisner, Nabarro, Dechert, Bird & Bird, Hill Dickinson, Kingsley Napley and Browne Jacobson. Besides that, hundreds of smaller firms all over the UK are being targeted daily. One rescue mandate Ortus Group received recently follows a £700,000 phishing attack on the client account of a sub £1m turnover firm whose future existence is now in jeopardy. The Solicitors’ Regulation Authority (SRA) has issued many public warnings that UK law firms are being increasingly targeted in cyber-attacks. And all law firms are advised to be mindful of the risks.
Mitigate your risk
Even though law firms tend to revolve around policy and procedure, so many of them don’t have adequate cyber-security policies in place. Begin by consulting cyber-security experts. There are several leading companies in the UK who can assist in getting your firm up-to-scratch with your data protection measures, email security and encryption, cloud and web security and endpoint protection. You can also decrease your risk by fostering a culture of cyber-awareness within your firm, by having the IT team educate staff about risks and preventative measures at regular intervals. Your last, very important stop is cyber insurance. Cyber insurance covers against damages caused by cyber issues including human error, cyber-crime, GDPR violations, loss of income and other risks.
Ortus Group are experts in executive search, mergers and acquisitions, connecting our clients with the best in the Law, Accountancy, and Wealth Management markets. Our team of experts has a wealth of experience that can help guide your firm in the right direction if you’re looking to sell, buy or simply considering change of any kind. We conduct informed searches of the entire market to ensure value for you, your team and your clients. We do the legwork, and produce high quality results that saves you lost billable hours and fees.
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Cybersecurity: Law Firm Data Breach come in Different Forms
UK Law Firms Remain In Cyber Criminals’ Cross-hairs
Cyber security advice issued to law firms in first legal threat report
Cyfor cyber-attack blog
Notpetya ransomware article
Anthony Gold attack
We speak with partners at law firms every single day; if we are not approaching them about a project for one of our clients, we are usually discussing the prospect of taking a lateral hire from us because there is a good business case for doing so. If they are a potential target candidate for a project, they can sometimes be sceptical about the veracity of the project we have contacted them about due to a previous bad experience with an agent masquerading as a headhunter with a retained brief that didn’t exist. When we pitch a business case lateral hire to a firm we do not have an existing relationship with, we are sometimes asked to speak with HR to agree process and this next contact is another example of where we find can be a misconception about what a “headhunter” or an “executive search consultant” actually is and how they differ to recruiters who work at recruitment agencies.
In reality, there is a huge difference yet the term headhunter seems to be used very loosely by some which contributes to this confusion.
Put simply, Executive Search or ‘headhunting’ is a method used to find the best suited person for a particular purpose, whether they are actively seeking new opportunities or not. This applies to acting for companies seeking people and for lateral partners seeking a better platform for their practice.
That said, recruitment agencies can be more effective than headhunting in terms of response rate and lower cost, particularly when considering very junior staff. When a company has a vacancy that they need to fill quickly, or several similar roles, they normally task a recruitment agency with finding suitable candidates. The selected recruiters will usually place adverts, search job boards and call a few contacts from their database. All these methods are very effective at finding those people actively looking for change. However, it is vital to bear in mind that at any given time, it is thought that less than 20% of any given market is looking for a new role and the more senior the role, the smaller this percentage becomes. With this in mind, think about how important getting the best person is versus filling the role quickly. Most people in any industry cannot be considered part of your possible candidate pool with the agency approach to recruiting.
By contrast, a headhunter does not search job boards or place adverts as they do not wish to limit their exposure only to people searching for a new role; they want to speak with the people who would be best suited to their project and most likely to be a success if they are able to attract them. Although Executive Search can be used on any vacancy, it is usually reserved for strategic senior hires or roles that can be particularly difficult to fill. Typically, the best people are not looking for change because they are happy, well rewarded and appreciated so they need to be engaged by a headhunter. When you think of the top 10-20% of performers in your current organisation, how many of them do you think are actively seeking a new role?
Headhunters take a very different approach to their task; they research the market to identify the best suited people and approach them directly. Accordingly, executive search consultants target the pool of people who are ambitious and open minded to opportunities that could offer them some form of advancement or improvement, the largest part of the recruitment target pool. The Executive Search approach to recruitment is a more resource intensive approach working in an advisory capacity to clients as well as researching the whole market to cover a much broader spread of targets.
At Ortus Group, we specialise in senior-level executive search particularly in the legal and finance sectors. Good candidates are hard to come by and the best way to find them is to actively target who you want rather than simply accepting the best of those who happen to be actively looking at any given point in time.
Contact us today for a confidential enquiry about your firm or your career.
Having delivered many mergers and acquisitions, my experience is there are always two variables that both have to work for any deal to be a success: finance and culture. They might seem quite obvious but failing on one or both usually means not enough synergy is created to deliver the anticipated benefit of a deal. Both factors need to be critically examined before any deal is contemplated.
When you are acquiring a practice it is likely the partners of the firm being acquired will think their business is worth more than it really is so be prepared for a lot of deals that never get off the ground! There are often arguments about the value of ‘goodwill’ that is not represented on the balance sheet that might or might not be credible. An assessment of the business in terms of reputation, order book, key staff and other such factors can help assess this. Another factor to consider are the hidden liabilities not on the balance sheet (or not obviously so!) and the benefit to the potential sellers of shedding them. For example leases the firm is tied into, redundancy costs if the firm ceased to operate as well as insurance run-off cover in the same situation.
When undertaking financial due diligence an assessment of two potentially big numbers on the balance sheet is vital– work in progress (WIP) and debtors. There is frightening potential for a WIP balance sheet valuation to be far from what the value is in reality. A firm I heard of was being acquired but due diligence found that large volumes of WIP had not been processed or written down against bills raised and hence remained on the balance sheet. As a traditional partnership there was less emphasis required in terms of financial audit so the problem had accumulated over several years. The deal fell through as sadly did the firm as its bank pulled the plug straight away. When considering acquisition a number of tests can be done to calculate the accuracy of the WIP and these are essential before any deal is considered.
Debtors can be a real problem for many firms when money isn’t got on account from clients and on-going costs aren’t monitored and controlled. Legal services are often a ‘distress purchase’ and debts can be difficult to get settled once such a service is delivered on credit. . So again the balance sheet might be overvalued with the debtors figure having to be heavily written down since it is unrecoverable. Again using ratios such as debtor days and lock-up will help determine real values. Also looking at debts by individual fee-earners and work types will give important insight.
The other reason that mergers can fail is due to a clash of culture. Firms differ hugely in terms of approach, systems, technology, leadership and personality. Extreme differences in these factors between two potential bedfellows will usually lead to a bad merger. Forcing change on people can lead to problems if not managed properly. So finding firms who share common denominators is the most likely route to success. For example it is important to compare values to ensure synergies. Factors such as using the same case management system can help smooth the process. An audit of potential cultural issues should be identified by a delivery team (consisting of people from both firms) and then integrated into the overall merger delivery plan. And managing the whole process is critical – being able to maintain the staff morale when there is uncertainty is an important attribute. Keeping people involved and maintaining and building relationships between the two firms before and especially after merger is essential.
Bristol based Star Legal expand into the Midlands through its merger with CMHT Solicitors LLP, scheduled to complete on 1 May 2019. In June 2018, CMHT instructed the business advisory and brokerage company Ortus Group to advise on its options for future planning which has led to the merger with Star Legal a South West firm expanding its footprint into the West Midlands for the first time. Colin White, Managing Director of Ortus Group commented, “Succession planning is all too often left until the last minute but because the partners of CMHT were on the ball and planning for their succession well before they need to retire, we were able to get a much better deal for them than would have otherwise been possible. Rather than settling for the first option to come their way like many firms do, we were able to generate interest from several quite different parties which meant the partners of CMHT ultimately had much more confidence that Star Legal was the right deal for their staff, their clients and themselves.”
Star Legal, a Bristol based firm with 17 offices, has long had ambitions to move into the West Midlands and was impressed by the quality and reputation CMHT has for its market leading Care and Mental Health practices as well as the private client offering from its Aldridge base. Joint Managing Partner of Star Legal, Ian Foster said, “We are delighted that the lawyers and staff of CMHT are joining Star Legal. I am sure they will become a valuable addition to the Star Legal practice in the Midlands and will bring other key skills including their strong care and mental health practices. Ortus Group have been very professional in their approach; always ready to assist when required to progress the deal.”
Philip Bellshaw of CMHT commented, “As a three partner provincial solicitors’ practice we have recognised for a while the potential benefits of being part of a larger organisation to ease the ever-increasing burden of regulatory compliance, offer greater stability to our staff, an opportunity for succession planning, and – most importantly – to ensure we can continue to deliver a first-class service to our clients. We believe all of these objectives will be enabled by us joining the Star Legal group, and we look forward to our future with them with confidence and a sense of renewed purpose. Dealing with Ortus Group, who brokered the deal, has been a pleasure from start to finish, as their wealth of knowledge of such transactions has been a constant guide and reassurance throughout the process.”
From Brexit negotiations to cybercrime, we take a look at some of the month’s top IFA and Wealth Management-related news:
‘No-deal’ Brexit: wealth managers urged to implement contingency plans
Amidst the uncertainty surrounding Brexit, the UK’s asset management trade body is advising its members to authorise their contingency plans for the country leaving the EU without a withdrawal agreement. According to New Financial, 43 wealth managers currently make up almost 300 companies who, regardless of Brexit negotiation outcomes, have chosen to transfer their staff to an EU base in order to ensure the undisturbed continuity of operations.
Chief Executive of the Investment Association has commented, “Since the Brexit referendum, British savers have taken nearly £19bn out of UK equity funds, which reflects broader concerns about the strength of the UK economy. A no-deal Brexit will only serve to further dent investors’ confidence in the UK economy, and every effort must be made to avoid it.”
The decisions being made to move operations to Europe strengthen suspicions that the UK’s position as Europe’s financial centre is in jeopardy. The most effective result may be to hold fire and wait to see where banks are looking to branch their networks before making any a decision to apply for a Markets in Financial Instruments Directive (MiFID) licence and follow suit in order to have a greater presence in Europe.
Brexit Hedge: The IFA that is sticking with Woodford
Neil Woodford has been making news recently. After months of disappointing performance, it’s been reported that many IFA clients are moving away from Woodford, yet director of Rowley Turton Private Wealth Management, Scott Gallacher is sticking with him. Despite Woodford’s reputation as a great fund manager in the past, Gallacher believes he has the only way out of the trap he has fallen into is through a good Brexit deal. This is due to Woodford’s holdings being small-cap UK domestic stocks rather than being dependent on overseas sales. A good deal, therefore would see the pound lift and affect companies with international operations.
Gallacher said his main worry, however, is that Woodford could have lost impartiality over the likelihood of a deal being struck in the Brexit negotiations. “However, as part of a larger balanced portfolio, the Woodford fund is arguably a good hedge against a good Brexit deal. A good deal is likely to see the pound recover and the value of the international holdings in a well-diversified portfolio fall,” he says.
We believe the problem with this ‘Brexit hedge’ is that the results of the Brexit referendum, as proved, cannot be predicted. What’s even more difficult, is being able to predict the market reaction that comes after the result. Woodford’s previous strengths were based on investing in companies that paid dependable dividends, however, after his latest controversial swap deal, it now seems that his ventures and strategies are muddled.
Cybercrime posing a greater concern for wealth management clients
With the growing complexity and sophistication of cyber threat, a recent report by GlobalData has discovered that just 40% of wealth managers and nearly 60% of their clients are concerned about impending cybercrime and data breaches. The nonchalant attitude towards cyber threat needs to change – with the digital sphere growing at an exponential rate, the industry will have to adapt to meet this changing landscape and future generations, with robust cyber security precautions firmly in place. Sergel Woldemichael, wealth management analyst at GlobalData, commented, “The typically paper-based and male-dominated wealth industry is beginning to experience client demand for technology and demographic changes.”
Wealth managers and legal firms hold a plethora of sensitive client data, making them a prime target for cyber attackers with dire consequences. IT security must be therefore moved higher up the priory list as this threat grows. Clients are increasingly recognising the importance of cyber security and are basing their decisions to work with legal advisors on the robustness of their defence, and the way in which their data is handled and kept secure. It is imperative, therefore that legal firms are investing in, and demonstrating the processes they have in practice to guard against cybercrime in order to retain the confidence of their clients.
Discover how you can stay one step ahead in the IFA and Wealth Management industry with Ortus Group. Get in touch.
In a dynamic and constantly changing professional services market, ensuring you have the right team in place to drive your firm forward is more important than ever. But building a great team that works well together doesn’t happen by accident; it takes time, careful planning, and management to attract and retain the right people that will give your organisation the best chance of success.
With a great team in place, your practice becomes a business with fundamental value beyond yourself, leaving you confident that when you are not present, your team are working to complete projects to a high standard, clients are being communicated with effectively, and you are profitable.
When building and maintaining a team to achieve your wider business ambitions, the following steps outline some of the key elements to consider:
Find the best people, not just the best of those who happen to be looking to move jobs.
Bear in mind that building a high-performance team begins with finding high performance individuals or those with the right attitudes and behaviours to become high-performers. At any given moment in time, it is estimated that less than 10% of the market are actively interested in seeking a new role and furthermore, this disengaged minority is unlikely to contain the best people. To reach the high performers, it is obvious that advertising and agencies are unlikely to yield the reliably best results so consider utilising your network overlaid with executive search, assuming the role is important enough to justify the additional cost.
Identify what high-performance looks like.
Before you begin to recruit therefore, the first step is to ensure your expectations and culture are well defined. This will allow you to employ based on the skills that will match your broader values, rather than simply fill a position. There is a huge number of excellent solicitors, accountants and advisors out there but finding those who can think entrepreneurially, win the confidence of new clients quickly, build their won teams, and navigate tricky waters with ease, is difficult. What does adequate performance look like; when does adequate become notable and when does notable become excellent? The gaps between these three steps is where you will start to identify those whose potential can be developed.
Build your group of specialists into an integrated team
Groups of lawyers, investment managers or any professional advisors become a firm through a common purpose and shared values, including assisting, cooperating and supporting each other. This is done within a corporate culture that will be reshaped over time by a range of internal and external factors, but should intrinsically remain consistent as it trickles down from the top. You can define your firm’s culture by assessing your values, work ethic, relationships between team members, and how your team practice as a whole.
Selecting the right specialists to join your team is the first step to success, however, integrating them into your team and building that ‘team mind set’ is essential so identifying cultural fit is as important as their ‘special skills’. Ensuring the culture and shared purpose motivates and inspires your team to excel is the foundation for building, integrating, and maintaining a successful team. Communicating this and genuinely living it means you should then be able to rely on your existing team to translate this embedded culture to new team members. Conversely, not having a clear company culture can often result in a high turnover of staff, internal conflict, and lack of direction.
Establish specific goals to achieve your company vision
Turning these values into reality requires a set of specific processes to ensure your team understand their own personal and team goals. This will provide them with the opportunity to feel empowered to maximise their potential within the firm and achieve the company vision. In order to articulate these goals, effective leadership that motivates employees to embrace and achieve these goals must be in place. This requires good communication, patience, consistency, and fairness.
Encourage open communication
Where you can, being open and transparent about issues relating to the company is key to ensuring your team feel valued and are invested in the ongoing activity within the firm. Creating an environment where your team feel comfortable to express ideas or concerns will provide them with equal opportunity to be part of company discussions and play a part in suggesting creative ways to resolve challenges and opportunities the company faces. In such a competitive market, a proactive and reactive approach to problem-solving will place your organisation well in relation to the rest.
Ensuring long-term success
In a competitive and constantly evolving market space, how professional services firms operate, rather than simply what they do, will stand them apart from the competition. People are your most important asset – you need an outstanding team around you to succeed which begins with attracting the best and is cemented by working hard to retain them. Having great people who know their greater purpose in the team will stand you in excellent stead for long-term success.
Get in touch to find out how Ortus Group can help you find and attract the best people who are not actively looking to change firms.
Six Common Assumptions that can Derail the Sale of a Law Firm and leave you with Significant Liabilities
Ownership changes in an organisation can take place for a variety of reasons and whether by sale, retirement or cessation, exiting a business can be a daunting prospect. When the time comes to exit your legal firm, careful planning around liabilities and assets is key to ensure a smooth transition that is right for you and your business. This will achieve the best value for you, remaining staff will be more secure in their ongoing employment, and you will ultimately avoid the main risks during the sale process.
Getting your business in order
Getting your law firm in order to ensure it is fit for sale and maximising its attractiveness before speaking with potential buyers is key. There are countless task that can be undertaken here that will pay dividends but simple and most effective measures will include thorough file audits, clearing account balances, and getting on top of interim billing. Bear in mind that any potential buyer will want to do this – you are just making sure you are ahead of the game, and being on top of this suggests the business is well run and less likely to have endemic issues to be uncovered deeper in the due diligence process.
This may sound like repetition, but it is good practice that makes your business look good to the interested party. It is also a common assumption that these are as good as they should be because you always do what you always do. Having a third party provide oversight ahead of a buyer conducting their due diligence can be money incredibly well spent.
Maintaining proper coverage through and beyond the sale of your practice is vital, and coverage details will likely be a key point in the sale transaction deal. Once your business has been transferred, there is still the possibility of unexpected claims cropping up later down the line, and a buyer will take a commercial view on the risk they are prepared to take on.
A common assumption people make is that a buyer will become a successor practice but if your insurance history has too many claims or notifications in the recent past, this is a red flag for a buyer who may insist that run-off cover is put in place instead. This can cost up to four times your annual premium so is prohibitively expensive for many firms, and will consequently torpedo acquisition deals. If your insurance is much more than 5% of turnover, this is generally an indication that you are seen as high risk. There are steps that can be taken to reduce this risk factor but it needs preparing well in advance of your planned exit.
Assuming that your premises is in good working order and compliant with the lease can be a costly mistake to make, and sales often fall through due to dilapidation costs being ignored until it is too late. Early action to identify the condition of the premises will expose any dilapidations, allowing you to prepare a realistic budget for the works to be done and ensure there is no miscommunication around who is liable to cover the costs. If dilapidation issues are not addressed before opening the doors of your business to a potential buyer, it may have a significant impact on their interest.
Although statistically unlikely, it is not rare for the Solicitors Regulation Authority (SRA) to close a business through intervention. This does not only happen in cases of dishonesty – if a firm is unable to sustain itself financially because issues like insurance and dilapidations have not been accounted for properly. Should this happen, costs mount up quickly and a business insolvency event can morph into a personal insolvency depending on the limited liability status of your firm.
Health and wellbeing of partners
Most people are sensible enough to work on the transfer of their business prior to health issues becoming apparent, but we all know someone who has been struck down long before their time when nobody saw it coming. It does not even have to be as serious as death – incapacitation for any significant period of time can ruin a small firm. This is not just by the loss of fees attributable to that one partner, but also from the additional workload (regulation, finance, staff, operations etc.) that it lands on the remaining partners and the knock on effect this has on their fee-earning abilities.
Just because you are considering selling your business, succession planning cannot be ignored. A lengthy sale process can be the undoing of a firm, particularly if a key person’s ability to participate in the ongoing business diminishes during the due diligence period. This will cause heads of terms to be renegotiated or even undermine the deal. One other point worth making here is how many firms operate as a ‘partnership at will’ which would mean the dissolution of business in the event of death of one of the partners. All firms should have a robust partnership/LLP agreement in place (or articles if incorporated).
Few people would choose to end a business by cessation because of the enormous additional levels of costs, but if the firm is not suitable for sale or all of the partners do not embrace the process, this is the only realistic option beyond continuation indefinitely. If you choose to opt for cessation instead of a sale, there are many costly implications to take into consideration. These include redundancy payments, run-off cover, termination penalties for leased equipment and premises as well as conducting an orderly handover of client matters to prevent SRA intervention. Closing a firm in this way could feasibly cost well in excess of one year’s profit, so sometimes a purchase price of £1 can represent incredibly good value.
Achieving a successful sale
Making the right decision on the best way to structure the sale of your legal business and transfer of liabilities depends on a host of factors. It is important to understand and evaluate these long before advancing the process to avoid unnecessary expense and delays. This will in turn help you to negotiate a more effective deal terms and accelerate the sale of your business, sometimes by years.
Discover how Ortus Group can keep you one step ahead during the sales process and increase your chance of a successful business sale. Get in touch with the team today.
The legal world is not getting any easier for law firms, or for those individuals involved in the legal sector. Regulators are becoming increasingly “engaged” with firms, lawyers have increasing personal liability and politicians have ensured that we have sufficient uncertainty as to what the economic future holds. So here are some tips on how to get through 2019. There are a few topics on the horizon for the coming 12 months which you should have on your Risk Index. Hopefully none of these will come as a shock to you, but you might want to make sure you and your firm have a plan in place for them.
New Solicitors Accounts Rules
Despite being referred to universally as SAR 2018, these are expected to come in to force in the first half of 2019. There will be 13 new rules as opposed to 52 currently and they are based on principles rather than the prescriptive nature of the current regime. However, if you are compliant with the 2011 rules now very little needs to change and by and large ‘adopting’ current rules will ensure your firm is meeting the requirements, but:
- some changes are necessary
- written policies and procedures will be required
- some ‘adjustments’ are allowed
- ensure you have an accounting and control manual
This was confirmed by Andrew Allen of PKF at the ILFM conference in November, along with the promise that there will be some guidance notes issued which are currently being written by Darren Whelan, the ILFM Chair
Common Client Account issues
At their conference in December, the SRA Head of Forensic Investigation and Intelligence, Sean Hankin discussed the 4 main areas of transgression that they come across during their engagement with firms. These are:
1) Failing to deal properly with Residual Balances.
Firms need to have good housekeeping in place. He stressed the need for firms to
- admit you have Residual Balances
- quantify these balances
- inform the SRA that you have them
- make a plan and deal with them
- monitor them on an ongoing basis
There are some simple strategies that firms can put in place to avoid getting into hot water with the Regulator and it does tend to be an exercise that finds cash for the firm as there are often unbilled/recovered fees
Too many firms fail to maintain proper 3-way reconciliations. Sometimes they are not signed by people with sufficient understanding of what the reconciliation means. Also, once a reconciliation is completed the firm still needs to deal with the reconciliation items rather than just rolling them forward
3) Providing banking facilities
Many firms are falling foul of the current Rule 14.5 and are allowing clients to use their Client Account as a bank account. There is some good guidance out there now but at Financial Eye, we interact a lot with the SRA on a confidential no-names basis on behalf of firms to ensure that they are not deemed to be breaching this rule. With the current focus on Money Laundering this issue crops up frequently. If in doubt, check it out
4) Unidentifiable monies received
Increasingly firms are receiving monies in to their Client Account which is unidentified. Unfortunately, it is no longer satisfactory to just send back these funds, you need to satisfy all AML checks which can be quite difficult. This is a growing problem and we don’t expect this to go away anytime soon.
VAT on disbursements/expenses/recharges
Every firm involved in conveyancing had to deal with the repercussions of the Brabners LLP v HMRC First-tier Tax Tribunal decision during 2018. One of the first responses to this decision was that the Law Society took down from their website their long-standing guidance note on VAT. At the ILFM conference in November 2018, Darren Whelan revealed that the Law Society are working on a new guidance note in this area so watch this space.
Making Tax Digital
Are you ready for the changes in VAT reporting that are coming in April 2019? This affects not only law firms but every VAT registered business in the UK
Price & Service Transparency
Whilst this came into force in December last year many firms are waiting to see how this unfolds during 2019. Are you already compliant?
Direct impact of Brexit on your firm
Unless you are directly involved with a vast pan-European client base, the effects of Brexit are likely to come from the impact on the UK economy. Have you thought about how you will respond to a drop-in fee-income or a loss of key clients? How will this impact on dividends or partner drawings?
All law firms need to have a succession plan in place. It is never too early, even if there is no intention to exit in the next 5 years. Jane Allan, the SRA’s Ethics Team Manager spoke on this matter at the SRA conference and specifically on the need to plan, save and talk. You need to think about the following:
- put a contingency plan in place including wills and POA for sole practices
- mid and larger firms also need to plan for exit and succession
- retirement – how and when is this going to be achieved for which partners
- how to identify the best purchaser/successor practice
rather than just the one your accountant knows
- have you considered the alternative to sale and costs of an orderly closure? These include PI run-off at 2.5 to 4 times annual premium, storage of records, winding-up costs, dealing with employees and redundancy, exiting leases and more
- financial difficulties – a managed closure is far better than an intervention
Obviously, the SRA approach is based on not leaving them to clear up the mess of a disorderly closure and with proper planning, this outcome is entirely avoidable. Financial Eye and Ortus Group have helped many firms put together and execute a successful plan for handing over the business and realising proper value.
Clearly 2019 promises to be another challenging year so if you want any help with your plan or to discuss any of the topics above, please feel free to get in touch with us. Good luck!