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Financial Stability & The Lexcel Standard

Financial Stability & The Lexcel Standard

Even the most reclusive of lawyers will have heard by now about the emphasis the SRA has placed on financial stability in 2013. In August, the SRA have sent firms a list of questions as part of "an information gathering exercise" on the subject. The initial recipients of these requests to provide information are firms that have been identified as heavily dependent on PI work, and Legal Aid. The communication from the regulator goes on to say that this is because of changes to profitability in both that came into effect earlier this year.

The information firms have been asked to provide is;

In relation to your most recent accounting year end:

1. Net profit
2. Drawings

In relation to your current position:

3. Total Borrowings
4. Details of your current overdraft facility
5. For each of the last three months, the highest and lowest bank balances on office accounts
6. Whether or not the firm has entered into any time-to-pay arrangements or deferral arrangements with creditors

In many firms that have received this request, cold shivers may be going up and down the spines of the partners who will have to provide this information; particularly where the information is negative and has been for some time, and the firm's COLP or COFA could soon wish they hadn't volunteered for compliance officer positions.

Profitability for firms is a condition of many factors, some of them external to the business, such as the changes cited by the SRA, the UK economic situation, any regional economic circumstances, et ad infinitum.

For those firms who have been struggling, perhaps now is the time to change, and perhaps consider what could be the catalyst for them to change. One catalyst that may help is the Law Society Lexcel Quality Standard.

The standard has been designed to help firms comply with regulatory and quality requirements, such as complaints, but adopting best practice approaches to such subjects will inevitably help with the bottom line, as reducing complaints for example minimises the loss of fee earner time, charges from the Legal Ombudsman, reductions in indemnity notifications and indemnity insurance costs.

There are also requirements for marketing and business planning, which if used effectively will have a positive effect on business development and increasing new matters, which in turn impacts the top line.

Keeping a healthy differential between expenses and fees is a must, and the standard helps further by a set of comprehensive requirements around financial management which coupled with the rest of the requirements and their implementation in the firm may help partners in firms avoid the cold shivers from an SRA request for financial information....

Cpm21 is the leading provider of Lexcel support services. Give one of our consultants a call today and find out why.