Small firms: majority support

Small firm partners are stressed by the complexity of the regulatory regime and the ruinous financial penalty of failing to comply with it.

They agonise over balancing time spent managing the business with time devoted to fee-earning. They struggle to retain staff as larger firms, with deeper pockets, poach the people their firm has invested time and resources in training. And they fret about cyber fraud, employees misbehaving, knowledge management, continuing professional development and all the other elements of running a successful legal business.

These manifold problems matter, because small firms make up around 85% of all the firms in England and Wales. That is around 8,400 practices, ranging from sole practitioners to four-partner firms, employing more than 26,000 solicitors.

Members of the public and local businesses mostly turn to the small firm sector for one-to-one services on personal and commercial matters. It is a crucially important sector and, in the interests of access to justice and the profession as a whole, one that should be nurtured and supported. It is to do exactly this that the Law Society launched its Small Firms Division.

Paul Bennett of Midlands firm Aaron & Partners is the inaugural chair of the SFD. He says the division aims to be a ‘free signposting service’, providing smaller firms with easy access to useful information and support. ‘There is limited free advice available on the subject of regulation,’ Bennett says. ‘Most firms are keen to comply, but many fall foul of the rules. It’s easily done and could even arise from being let down by a third party – your accountant, for example, sending the accounts to the Solicitors Regulation Authority’s former address. If your accounts are late, the SRA will fine you.’

The SFD aims to redress the balance, Bennett says, through its programme of conferences, ‘how to’ articles, guidance notes and regular meetings. In the last 15 months, he has written on: how to handle a production order under the Proceeds of Crime Act 2002; retainers; engagement letters; risk management; and consumer law changes. He also speaks to around 50 to 60 small firms every year, giving practical help and encouraging them to air their problems.

‘We are still looking for new members,’ Bennett concludes. ‘The SFD is a free service that could hold the key to your firm’s future prosperity.’

SFD vice-chair Sally Azarmi, talking about setting up her own sole practitioner firm three years ago, notes that the initial problem is ‘you don’t know what it is that you don’t know’. She adds: ‘You can get in a panic over SRA regulations. You understand that they exist to protect the public, but there is also the fear that they are there just to catch you out. You’ve got to keep the Information Commissioner happy, carry out anti-money laundering due diligence, keep accounts properly and all the rest. Regulation can seem unending and yet all you really want to do is give your clients the best possible service.’

Azarmi complains that there is ‘no software package’ out there that makes compliance, accountancy and keeping up to date with rule changes affordable and fast for start-up firms. ‘Information is everything,’ she says, ‘because otherwise you can accidentally not comply. When asked what it was like setting up on my own, I reply that it was as if the roof had been lifted from above my head. I could move in any direction I felt was right for my clients and practice. That’s the best feeling in the world.’

She adds: ‘However, at the same time, I felt as if the floor had been taken away from under my feet. That wasn’t such a great feeling. I felt very much on my own, with little or no support.’

And how are things three years on? ‘I have a better understanding [of running the firm] and a viable business,’ she replies. ‘I’ve learned to make brutal decisions and fire people who are not contributing. A small firm like mine needs staff who are going out to hunt for business, kill it, cook it and bill it. I’ve also learned that cashflow is king. You must know what you are worth and not undersell yourself. It is key to chase money owed or, better still, have money on account – half when you start, half when you finish. But one thing has not changed. I am still frustrated by the lack of encouragement, engagement and visibility for small firms. That’s why the SFD is so important.’

She offers some pastoral advice: ‘If you fret all the time, you will drop dead. Seek advice from wherever you can get it, in particular from the SFD.’

SFD committee member Sarah Sargent, who is head of conveyancing at Yorkshire firm Hattersleys, joined the division because small firms are constantly ‘moaning and groaning’ about compliance, but doing nothing concrete about it. She was determined to make a difference.

What are the most important issues facing small firms? Sargent replies: ‘Maintaining client focus. For high street practices to develop, you need to maintain the trust of clients. You want your number to be in your clients’ telephone contact list, along with the dentist and doctor, and you want your clients to feel they can just walk through the door for advice.

‘There’s no point in small firms trying to run with the big boys. You haven’t the staff or the budget. You should be encouraging people, in particular your private clients, to update wills, seek advice on care home fees and lasting powers of attorney, and generally providing them with advice around life-changing moments. If you manage your clients properly, you will see more of them.’

And is her approach working? ‘I think so,’ she says. ‘[SFD] chairman Paul Bennett said mine was the voice of the sensible, common sense high street firm. That’s good enough for me.’

John Scott, SFD committee member and northeast England-based sole practitioner practising as Reed Ryder & Meikle, suspects he is one of the ‘very few’ solicitors who is also a member of the National Union of Mineworkers. ‘My constituents,’ he says, ‘are the more mature type of solicitor, working alone or running a small firm, who are a mite technophobic and struggling to adapt to new online ways of doing things.’

His vision for the division is that, in conjunction with the Law Society, it should give practical support and assistance in countering such developments as accountancy firms earning – ‘after two afternoon training sessions’ – grants of probate. ‘Solicitors are regulated on all sides and yet the same rules don’t seem to apply to our competitors.’

He would also like to see his constituents, in particular, receiving more practical advice on selling or merging their firms at the end of their careers. ‘One problem,’ Scott says, ‘is that accountants have different ways of valuing law firms. Some use the same criteria as for a fruit stall, others at least attempt to treat us as professional services providers. It would be helpful if the Law Society’s own accountants could provide definitive guidance as to how to review law firms’ accounts.’

Scott adds that the Law Society’s merger toolkit is ‘useful, but not aimed at small firms’. He says: ‘We need advice on redundancies, closing the business, insurance run-off and the rest. Ideally, we would like a dedicated helpline that we could call at any time.’

Another SFD committee member, Tony Roe of Berkshire firm Tony Roe Divorce & Family Law Solicitors, surrounds himself with a ‘cabal of sages’ who can advise him on IT and other specialist areas. ‘Why struggle to learn something new when your time would be better spent with clients?’ he asks. ‘Also, who wants to be kept awake at night worrying about things you don’t understand?’

Sole principal Roe, who previously led the family team at a medium-sized Reading firm, started his new practice with just one table – ‘which happened to be a kitchen table’ – and one room in shared offices in 2008. The firm now employs several solicitors as well as support staff and a book-keeper. ‘I’ve kept the practice specialised and niche,’ he says. ‘I’ve focused on the work I really know, which is divorce and family. And I’ve kept it small. Any one morning I know exactly what we’ve got in the bank, which is more financial control than huge firms can boast.’

Roe describes the division as a ‘resource and support mechanism’. He says: ‘It can be lonely when you find yourself with sole responsibility for a firm after being part of a big team. I’ve learned a lot from the SFD. It’s a gateway to information. There are always questions to answer. How are we to move forward and grow? Do we want to grow? What are the pros and cons of going limited? The SFD’s website, conferences, events, publication and networking forums are all very helpful from a management point of view. They remind you that you are not alone. There are others in the same boat.’

What would he advise small firms to focus on? ‘Cybercrime. Assume that it’s going to happen to you and take steps accordingly. Get the best advice, constantly review your IT systems, make sure you have good backups. Ensure that you and your staff are always vigilant.

‘In a nutshell, there is no room for complacency. Learn from other people and discover there are different ways of doing things. It’s all a steep learning curve, but it’s fatal when you get smug and think your systems are the best and cannot be improved.’

Jonathan Rayner is Gazette staff writer

• For more details on the Small Firms Division go to the website