ALMOST a quarter of law firms in Yorkshire are “at risk” of financial difficulty, according to the research by insolvency trade body R3.
A survey showed that out of a total of 509 active legal firms in the region, 14 were considered “high risk” and 104 were in the “caution” band.
However, the figures are a slight improvement on a year ago when 27% of the region’s law firms were “at risk”.
The latest figure is also more positive than the national one which shows 31% of law firms across the UK at risk of failure in the next 12 months.
The legal sector continues to face the challenge of The Legal Services Act or “Tesco Law” which has made legal services easier to access by allowing non-lawyers to invest in and own legal businesses via Alternative Business Structures.
Chris Wood, Yorkshire R3 committee member and partner at Clough Corporate Solutions in Cleckheaton, said: “By opening up the legal market, the Legal Services Act has increased competition at a time when there is already pressure on client budgets and over supply in the sector, and this combination of factors poses a real threat particularly for small high street firms
“Already, we have seen a great deal of consolidation in the regional legal market with a number of mergers.
“This is a trend that we expect to see continuing with small practices unable to afford the level of branding and marketing or the technology to compete with Alternative Business Structures.”
Said Mr Wood: “Next month, partners in law firms will once again have to make their second tax payment of the year, which can be a real squeeze on cash flow if it hasn’t been carefully planned for. Ideally, a tax reserve fund will have been maintained for this purpose and this should be monitored and steps taken to apply for a reduction of payments on account if earnings are expected to reduce over the coming year.
“While law firms in Yorkshire and the Humber are faring relatively well, they are continuing to face a challenging environment.”
