Covid-19 Cash Flow Issues Impacting Legal Sector

During these uncertain times, the worry about how the UK economy will cope and recover from the Corona virus pandemic has been talked about by many.

Whilst firms are attempting to consolidate their cash flows and ensure they can recover and hit the ground running when the UK comes out of lockdown, it seems it’s becoming harder and harder for many.

A study published by Augusta Ventures, and published in the Law Society Gazette, shows that out of 40 LLPs, 55% had insufficient cash on their balance sheets to cover one month’s operating expenses. The study also revealed that 38% of those spoken to wouldn’t be able to meet one month’s salary bills.

The study focused on the firms whose financial accounts were publicly available, focussing on the top 40 LLP firms on a consolidated basis.

It’s probably no surprise that those firms that are under-capitalised will find it a lot more difficult to deal with and overcome the financial impact that the pandemic is having on all sectors, not just the legal one.

Andrew O’Connor, author of the study, commented:

“The rate of cash burn experienced by law firms during this period will place significant strain on balance sheets.”

A survey conducted last week by the Law Society encompassing 8,000 legal practices, suggested that thousands of high street firms in England and Wales, could shut by the end of the year as a result of the financial damage inflicted by Covid-19.

Simon Davis, President of the Law Society, said:

“The shock to the legal services sector has been sudden and severe.

“There are widespread concerns over liquidity as firms face a dramatic plunge in income with work falling away.

“Although a firm may be open for business, this does not mean it is business as usual.

“Residential property transactions have ground to a halt.

“Reduction in court hearings has massively impacted on the amount of work available – while social distancing and the lack of face-to-face meetings is causing difficulty delivering in other areas, such as the execution of wills.”

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