News focus: Are small firms better placed to weather Covid-19?

Every law firm in this country will be struggling from some aspect of the coronavirus lockdown. Some have taken the option of furloughing staff or seeking government-backed loans, but inevitably there will be those that fail and disappear.

The question of which type of firm is most vulnerable cannot be answered with any certainty. But a school of thought is developing that well-managed smaller firms could be ideally placed to survive the lockdown’s challenges. These are firms with typically fewer than 25 employees, without multiple city centre rents to pay, and with the agility to respond quickly to a completely different work environment. No one is saying smaller firms are immune to the same market pressures as the rest, but the better of their number have a fighting chance.

One owner of a firm with 20 staff told the Gazette: ‘Whatever size you are the issue is getting people working from home and keeping the lights on. As a small business we are not a cruise ship that can’t change course; we’re a dinghy which means we can be agile and steer away more easily from trouble.

‘I was flabbergasted at the number of firms that were not ready for staff working from home. When problems are forced on you we’ve seen how responsive firms can be. The advantage of working in a small firm is the decision-makers are in with the workforce – managers are closer to them physically and emotionally as they are going through the same day-to-day pain.’

Sole practitioner Marc White, a solicitor and notary public from Bristol, says reports speculating that small firms are necessarily more vulnerable seem wide of the mark.

‘Smaller firms and sole practitioners often carry lower overheads, operate in a niche field and have little or no borrowing,’ he said. ‘Depending upon practice area, many are well equipped to handle the crisis as survival has always been high on their agenda.’

When Anna Beaumont and Karen Bexley (pictured above) established their boutique firm Bexley Beaumont in Manchester at the start of this year, they could not have predicted dealing with a pandemic within three months of trading.

Beaumont told the Gazette: ‘We are very fortunate as we are currently small and agile, our model is different to the traditional partnership one and we already promote and have the infrastructure to support flexible and remote working.’

Just like with most firms, communication has continued during these times through social media and video calling. The advantage of a small team is it can be easily managed and every member of staff feels included.

Market analysts suggest there is no size of firm that will definitely ride out this period, although larger firms inevitably face more searching questions about how they will operate.

Viv Williams, from consultancy Symphony Legal, says many sole practitioners might struggle in the short term but could bounce back quickly because of a lack of overheads.

‘The ones I worry about are those with significant costs that have been poorly managed and not profitable and their access to funds could push them into insolvency in the next few months,’ says Williams.

‘This is a long-term crisis and we will never go back to the way things were – law firms traditionally thought they needed multiple offices and didn’t trust staff to work remotely. That has been proven wrong and those firms with a robust IT platform have found they can close offices and will never reopen them.’

He says many smaller firms cannot obtain the funding they need under the government’s Coronavirus Business Interruption Loan Scheme as the lending criteria used by the banks are commercially driven, with firms turned down if they have been not very profitable.

David Gilroy, managing director of website and marketing specialist Conscious Solutions, says the main issue is less the size of the firm and more the state of its balance sheet.

He adds: ‘If a firm, large or small, has been paying out every penny in profits to their owners and not building up cash reserves, if they are bumping into their overdraft limit every month, then they will find it harder to survive.

‘A firm that only draws, say, 70% of its profits and thus perhaps has no debt, and is good at invoicing WIP and chasing debtors – no surprise – will do better in this “survival” phase.’