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COVID-19: A survey for professional services firms

Thank you very much to all those who participated in our recent COVID-19 survey. The data is extremely illuminating.  

A complete set of data is available to download here and I set out below some comments and observations.

A fantastic 27 firms responded to the survey although please be aware that not all respondents were in a position to answer all questions. Perhaps this is because the bulk of respondents represented larger firms (35%) where detailed management and financial information would be restricted to a small management team.  

Remote working

No firms have been significantly affected by the virus itself, but all have made significant adjustments to their working practices for lockdown.  

During social distancing but before lockdown, only half of firms had asked all fee-earners to work from home and less than 30% had asked all support staff to work remotely. Now, however, almost 80% of firms have all of their fee-earners working remotely and all firms have at least 75% of their support staff working at home. This is probably not surprising during a global pandemic, but it is perhaps more of a (pleasant) surprise to see that after just one month an overwhelming number (81%) of feel that their IT and remote working infrastructure is excellent. No matter how good the business continuity planning, IT teams, and existing remote working practices, the entire sector has required huge adaptations so it is fantastic that everything is running so smoothly in such a short time.

Client work

The data suggests that client work has slowed, or is slowing, but has not fallen off a cliff. One respondent notes however that while this is accurate of the firm as a whole, when the detail is considered, some teams are very busy while others are extremely quiet. 

Disputes, employment and insolvency are expected to stay busy, while corporate, capital markets and real estate are expected to see less activity.

Finances

Before lockdown, half of respondents held cash equivalent to 4 – 6 months’ expenses, with 17% having only 3 months’ cash. The data demonstrates that firms have already taken a number of measures to protect cash and reduce costs, although the majority of respondents (67%) are only predicting a dip in turnover of 10 – 30%.  

After cost and cash saving measures, those with 4-6 months dropped to 36% of respondents, with 18% having 6-9 months and 18% having 9-12 months’ cash. Only one respondent still holds only 3 months of cash. 

The most common cost-saving measure is furloughing support staff, with 61% of respondents having already taken this step and only 6% saying that they would never consider this. 33% of firms have already furloughed fee-earners.

Since lockdown, respondents have also reduced working weeks (voluntarily), frozen pay, renegotiated with suppliers/landlords and one firm has already made some support redundancies.  

As one respondent highlights, cash is – as ever - critical for all firms. Almost half of respondents have already suspended partner post year-end distributions, and some have also reduced monthly partner drawings. This reflects the reality which is that if profits do not justify drawings there is almost always a contractual obligation to repay excess drawing. Even if not, on a liquidation for LLPs there is the risk of clawback if the member knew or ought to have known that the firm may be or become unable to pay its debts. In the larger firms, does this make the management board feel more vulnerable?

Almost 40% of respondents have already sought additional credit.  

Only 6% have made partner capital calls to date, but this is a longer term option for 70% of firms. 24% of respondents say they would never consider this. The data is not sophisticated enough to show whether this is because partners feel the firm is a sinking ship into which they would not invest more money, or whether this is simply a by-product of operating through a limited liability vehicle (as the vast majority of firms now do).

Partnership

Crisis-related partner exits do not appear to be expected. 45% of firms feel that the partner body composition will only change in the usual way, such as performance related exits, in the short term at least. Firms are also roughly evenly split on whether the crisis represents an opportunity to recruit lateral partners.

Finally, very few firms already have waiting rooms (29%) or lock-in provisions (7%). While their value is debatable in good times, some argue that restricting partner exits can provide essential stability in times of difficulty and distress. As we have all seen, mass partner exits can cause even large and profitable firms to implode.  

Of course a partnership expert would conclude this, but during challenging times it is more important than ever that the partners work together to ensure the firm’s survival and success.

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