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Limerick Solicitors Bar Association Market Update

Limerick Solicitors Bar Association Market Update. 14 th April 2011 David Rowe. Where are we?. Our ‘average’ client – comparison with peak Profits reduced 25% to 50% Fee income down up to 50% Expenses reduced by 33% Headcount down 25% 1 10% pay cut down, another done or looming

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Limerick Solicitors Bar Association Market Update

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  1. Limerick Solicitors Bar AssociationMarket Update 14th April 2011 David Rowe

  2. Where are we? Our ‘average’ client – comparison with peak • Profits reduced 25% to 50% • Fee income down up to 50% • Expenses reduced by 33% • Headcount down 25% • 1 10% pay cut down, another done or looming • See getting a good salary as a result • Debtors up significantly • Balance sheet management now an issue

  3. The Market – by practice area • 5 main situations • Commercial, Commercial Property, Banking etc down 70% to 90% off peak activity levels. Will recover, albeit at tighter rates. These areas are the differentiating factors, must keep investing in • Litigation, Insolvency, Employment law up an average 20%, issue is to get paid

  4. The Market – by practice area continued • Private Client – Residential Conveyancing changed forever, fee rates after recovery will be irrevocably eroded below those which larger firms can service profitably • Family Law and Probate – fees lower but still profitable in some circumstances • State / tendered institutional work -20% / 25% reductions where tendered, lots of work will be retained – a big opportunity/threat

  5. The Market – by practice area continued • Where are the opportunities: • Commercial litigation • Corporate restructuring • Insolvency/Debt Collection • Employment law • Family law • Crime • Regulatory / professional indemnity • Construction disputes • Defence and plaintiff personal injury litigation • Commercial deals (small transactions only) • Estate planning / Wealth management / Probate • Limited commercial and residential conveyancing – now leases

  6. The Market – by practice area continued • There is still work in the following areas but less of it: • Residential Conveyancing • Commercial Conveyancing • Company Commercial • Banking

  7. The Market – Implications • Firms have changed radically over the past 3 years, those actively repositioning doing the best • Repositioning/re-investing mean actively re-orientating the firm to the areas still active while keeping contacts where markets are quiet

  8. The Market – by firm size • Small firms – huge distress, main practice areas eroded (PI Litigation and Conveyancing) and Professional Indemnity Insurance uncertainties, many will fold their tents • Mid-size – income back by 20% to 25% typically. Very quick to react on the cost base and not as economy dependent as large firms (good litigation, probate, crime and some institutional / State work). Some badly hit – developer / banking practices

  9. The Market – by firm size cont. • Larger firms – huge challenge to reduce their cost base and very economy dependent with fewer anti – cyclical areas than mid-sized firms but started from a position of high profits. Now picking up high end advisory work, NAMA work etc. • Overall –serious challenges to survive, trend of work gravitating to larger firms • Mid-sized space is best (with a strong litigation department) • Significant oversupply of solicitors to work available – 5,000 to 7,500?

  10. The Balance Sheet • We now have firms struggling to stay afloat • Not a time to owe and be owed a lot • Banks tightening the criteria • Many firms still overdrawing – negative capital accounts a no • Getting paid demands a whole new set of disciplines and follow up internally

  11. Keeping cash flowing The new rules • Consider the credit risk before you take on the work • Do not finance outlays (some exceptions) • Long term assets = long term finance • Have a structured credit control system, this starts at accounts level • Know your breakeven and your profits per hour figures

  12. The Banks • See solicitors as a mixed bag • Many firms or partners over borrowed • Want the following as a norm: • Overdraft no more than 1 months fees • Partners capital equal to or above lending facilities • Capital items such as a goodwill payment, an office fit-out or a building purchase are outside these tests • Changing the rules on set off • Still regard well managed firms as premium business, the client account is a factor in this

  13. What happens next? • Currently work for 5,000 out of 7,500 solicitors in practice • Litigation fees will come under pressure • Litigation, crime, probate and institutional work will carry firms through • Slow recovery in the economy will lead to a slow recovery in transactional work • Fees per hour will continue to fall

  14. The Cost Base • Other overheads will fall where reductions sought • PI will remain high for 3-5 years • Property costs will continue to fall • Operating with good systems and appropriate cost base will become part of doing business

  15. Structure of the Profession • The profitability between will run and poorly run firms will widen, poorly run firms will be uncompetitive • Amalgamations will happen from full mergers to overhead sharing convenience co-operatives • New and dynamic full service partnerships will enter the market • Many will leave the profession • More space for those who continue

  16. Surviving • Its survival time • It is still about the fundamentals • Client service • Marketing • Good people • Effective management • Financial control

  17. Client Service • Going the extra mile for clients • Same return of calls • Prompt written response • See client’s as the lifeblood of your business, not as a nuisance • See transactions through the client’s eyes

  18. Good People • Recruit and retain the best • Train and empower staff in a team environment • Communications key, weekly or fortnightly meetings work • Be hard on underperformers

  19. Marketing • It’s still out there, if harder to find • Starts with service levels to existing clients • About being visible and connected • Look at mutual referral points • Tenders are the order of the day • 250 Partner rate max • Don’t take your eyes off client retention (more important than marketing)

  20. Effective Management • Now includes: • Finance • Human Resources • IT • Risk Management • Managing work flows

  21. Financial Control • Can we do the work and make a profit? • How do we make sure we are paid? • What is the correct cost of running my office? • What do I need to bring in each month to earn a living? • What does it cost me to do an hours work • Can I buy my overheads better?

  22. Conclusion • The profession is undergoing radical change, size necessary to make a living is increasing • Earning a good salary is now a result • The demands and skill sets needed are higher in every sphere • This phase will end, transactional work will pick up gradually

  23. The Survival Guide • Recognise where we are – large fees not in the files anymore • Look after clients with high service levels • Bring your costs per hour down • Get the cash in, up front where necessary. Do not fund outlays • Consider a merger – will be right for some • Run your firm on the basis current conditions will last 18 to 24 months • Help available – Practice Advisory Service

  24. For further information contact: David Rowe Managing Director Outsource Ph: 01 6788490 Email: dr@outsource-finance.com

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